Sunday, 1 March 2009

HMRC To Change The Way It Carries Out Compliance Checks

The way HM Revenue & Customs (HMRC) carries out compliance checks (also known as enquiries, visits and inspections) will change from 1 April 2009. These changes will affect how we manage compliance checks for:
  • Income Tax
  • Capital Gains Tax
  • VAT
  • PAYE
  • The Construction Industry Scheme
  • Corporation Tax

The new compliance checks legislation is designed to make the tax system simpler and more consistent.

From 1 April 2009, HMRC will have one set of powers covering PAYE, VAT, Income Tax, Capital Gains Tax, Corporation Tax and Construction Industry Scheme to:


  • visit businesses to inspect premises, assets and records
  • ask taxpayers and third parties for more Information and documents

These powers are provided by Schedule 36 of the Finance Act 2008.


The new legislation will also provide:

  • greater flexibility in setting record-keeping requirements after 1 April 2009
  • new time limits for assessment and claims which will not be fully in force until April 2010 - but there will be some transitional arrangements from 1 April 2009
  • important safeguards for customers
    These measures are provided by Schedule 37 and Schedule 39 of the Finance Act 2008.

Legislative changes at a glance:

The new legislation provides HMRC with:

  • one set of powers to inspect business records, assets and premises
  • the ability to see statutory business records without a right of appeal
  • the ability to look at records for PAYE, Income Tax, the Construction Industry Scheme,
  • Capital Gains Tax and Corporation Tax during the tax year before a return has been submitted
  • a new power to correct obvious errors in a tax return based on information held by HMRC
  • a single approach across all taxes to asking taxpayers and third parties for supplementary information, based on formal information notices with a right of appeal

The legislation also makes some changes to the way HMRC must carry out compliance checks, including:

  • a new four-year time limit for assessments and claims - a reduction from six years for Income Tax, Capital Gains Tax and Corporation Tax and an increase from three years for VAT
  • reductions in extended assessment time limits
  • a streamlined process for closing Corporation Tax assessments
  • a new statutory ban on inspecting purely private dwellings without consent
  • a statutory requirement for HMRC to give at least seven days prior notice of a visit, unless either an unannounced visit is necessary, or a shorter period is agreed
  • a new requirement that unannounced visits must be approved beforehand by a specially trained HMRC officer
  • a statutory requirement on HMRC to act reasonably.

Soooo. That's the official line out of the way, but how will affect the average Tax Payer?

Well, for once, HMRC appear to be genuinely trying to streamline the system, and, not only that, there is a wealth of information around to help us understand the new regime, including the HMRC web site, a podcast and online learning tool (see the links below).

There has been much concern amongst smaller, home based, businesses that these new powers will, effectively, give HMRC carte blanche to visit their home premises whenever they wish. The reality is, this would only happen in instances of suspected fraud, or if there were a strong reason to do so (such as significant levels of equipment and / or stock being stored there or employees working from a home office). HMRC have also confirmed that they would be happy to conduct any such visits with the client's accountant in attendance, to minimise the 'fear factor' involved.

In conclusion then, although the penalties can be severe for non compliance, if we stay within the legislation, we have nothing to fear. This is being made easier to achieve, by standardising the procedures and penalties across all key areas of tax.

As usual, only time will tell.

The HMRC web site, http://www.hmrc.gov.uk/about/new-compliance-checks.htm, outlines the basics.

It also has a link to the online e learning module, http://www.hmrc.gov.uk/e-learning/compliance-checks/Externalmodule/HTML/Externalmodule_menu.html.

There's even a podcast available, at: http://podcasts.hmrc.gov.uk/audio/18_HMRC_Compliance_Checks.MP3. It's only 8 minutes long, so why not check it out?