Trick or Treat? What to do when HMRC knocks on your door…
HMRC has civil information powers which permit it to enter and inspect business premises with a view to checking a person’s tax position.
Such visits may occasionally be unannounced, and the business owner is faced with two or more HMRC officers holding an information notice purporting to give them access to the business premises.
Too often business owners are unaware of how HMRC may exercise those powers, and their own rights, and fearing the consequences of not giving way HMRC’s demands, provide more information that is required to HMRC.
Some officers test the boundaries of what HMRC is permitted to do, sometimes through inexperience or lack of training.
While it may be stressful to be faced with an HMRC officers making an unannounced visit, simply giving way to HMRC can lead to nightmares.
HMRC & Civil Information Powers – The Legal Position
An information notice issued under Part 2 of Schedule 36 of the Finance Act 2008 provides HMRC with the power to enter a person’s business premises and inspect the business premises, business assets and business documents if that inspection is reasonably required for the purposes of checking their tax position.
Business premises are any premises HMRC has reason to believe are used in connection with the carrying on of the taxpayer’s business. Those premises include “means of transport”, so HMRC may also be able to enter and inspect a vehicle. However, any the inspection powers do not include any part of the premises used solely as a dwelling. For example, HMRC inspecting a pub would be able to inspect the bar, cellar, store and (commercial) kitchen, but not any living accommodation.
Business assets includes cash. However, HMRC cannot demand that a business owner “cashes up” to ascertain the amount of cash held; however, officers may observe cashing up at the normal time, e.g. at the end of the day.
Business documents are any relating to the carrying on of a business by any person and that form part of that person’s statutory records. Statutory records are information or documents required to be kept and preserved under the Taxes Acts (and related VAT legislation) to enable a person to make a complete and accurate return, declaration or claim to HMRC.
Trick or Treat… Do I have to let HMRC officers in?
It’s a common misperception that if HMRC make an unannounced visit, that you must permit them to enter your premises.
An information notice issued under Schedule 36 is not the same as a judicially-approved search warrant executed in a “dawn raid”. Information notices provide HMRC with the ability to inspect but not to force entry or search.
If HMRC officers make an unannounced visit with a Schedule 36 information notice, you may wish to ask them to make an appointment to return on another occasion.
What does “inspect” mean?
HMRC’s own guidance states that “inspection” means “that you may look at what you can see but you may not look for something that you cannot see… Inspecting means you are allowed to touch and to open things as long as you are not searching for things”.
Consequently, while HMRC can ask to be shown statutory records that the taxpayer is required to preserve, it cannot go searching for documents to which they have not been provided access.
Is HMRC entitled to see any documents it wants?
HMRC can ask for statutory records.
There are documents that HMRC are not entitled to see. For example, HMRC may not inspect documents which are subject to legal professional privilege while documents which are older than six years also require additional internal HMRC authorisation to permit HMRC to inspect them.
If they do not hold that authorisation, they are not entitled to the document. It is therefore important to ascertain exactly what the information notice held by the officers covers.
You can also read more about tax investigation advice below.