Compliance checks don’t always mean that there are problems with the amount of tax paid or allowances received as some checks are purely routine. Some investigations end with a single letter, whilst others can go on for months. Here, we shed light on the process.
An Information Notice
HMRC may contact you or your accountant if for instance, your income jumps or dips dramatically or if your tax returns are always late. The purpose of an information notice is to inform you that HMRC has opened a formal enquiry about your tax affairs. The notice will request certain information and/or documents by a specific date to assess your liability. These may include a self-assessment tax or company tax return, PAYE records and returns, accounts and tax calculations. The timescale to respond is typically within 40 days from the date of issue of the notice.
The best course of action is to respond immediately. It’s important to keep in mind that the compliance check could just be random.
A Formal Information Notice
If you don’t provide the information and/or documents requested within the timescales cited, HMRC will issue a formal information notice. This should be taken extremely seriously as you may be fine up to £300 for failing to comply. You may also be fined up to £60 per day until the information requested is provided. In 30 days this can add up to £1,800.
A Notice of Inspection – Announced Visit
HMRC will pay you a visit if it suspects that the correct tax isn’t being declared. These visits are sanctioned by an authorised officer or a Tribunal, and may not be restricted to tax but could also look at PAYE, VAT and NICs. For the most part, an announced visit to a home, business premises or an adviser’s office is arranged by letter or phone. If the visit is arranged by phone, request that HMRC confirms all the details in writing. You must agree the date and time of the visit, and HMRC must give at least seven days notice. The inspecting officers are also named in addition to what the officers are authorised to inspect during the visit.
You cannot prevent HMRC from inspecting business records or premises, but HMRC does not have the right to enter a private dwelling without consent unless business records are kept there.
A Notice of Inspection – Unannounced Visit
Unannounced visits are not just random, and you should seek professional advice before letting in HMRC. As with announced visits, the notice will be signed by an authorised officer at HMRC or a Tribunal. It’s worth remembering that you cannot be fined for refusing entry when the notice is signed by an authorised officer. However, there is a penalty of £300 if the notice has been signed by a Tribunal and you still refuse entry.
You will be required to pay the £300 penalty if there is no reasonable excuse for not permitting entry. An accountant not being present would be deemed a reasonable excuse.
After the Compliance Check
HMRC sends a letter with the results of the compliance check, detailing whether you have overpaid or underpaid tax. In the latter case, you will have to pay any additional tax within a 30-day period. Once HMRC knows why you have underpaid or claimed certain allowances, it will decide whether there is a penalty to pay. HMRC will also look at how helpful you were during the compliance check.
If you have been informed that you are the subject of an HMRC compliance check and would like to know more about the process, please call 08000 746 757 or email [email protected] for free and confidential advice from one of our professional advisers.