HMRC Enquiry Process

Does HMRC have a statutory entitlement to issue an information notice as part of a fishing expedition? This question was considered by the First-tier Tribunal in Spring Capital Ltd v Revenue and Customs [2015] UKFTT 8 (TC).

Unfortunately Yes, and this is how the story goes....

What are the usual stages of an enquiry or check?

1. You will unfortunately be sent an opening letter.
1. This letter can be triggered by certain things within HMRC system, or it can be completely random.
2. Always check that HMRC are within the time limits for opening an enquiry or check.
3. Is the information HMRC asked for reasonable? If not, challenge them, by asking why they think the information is needed to check your tax position.
4. Check you can comply with any timescale for providing information. If you think you cannot meet the timescale, contact HMRC as soon as possible to agree an alternative timescale.
5. If you have an accountant, notify them immediately.
2. Further correspondence

1. If you do not comply with the original informal request for information, you will normally be sent a formal request. This means a penalty might be charged if you do not send in the information in the required timescale.  This is a crucial point when the penalty for any unpaid tax is considered.
2. You may be asked to clarify certain matters. If you are unsure how to respond or have made a careless or deliberate error either contact you accountants.  If you do not have an accountant, seek out a qualified individual to assist you with the enquiry.

1. A meeting may be and is normally requested

1. The meeting can substantially cut down the time an enquiry takes. Remember you can request a meeting if you think that would help, an initial meeting can also reduce the stress of the enquiry as you ascertain the reason for the enquiry.
2. Consider whether you want to attend a meeting alone or with someone. Normally attendance will demonstrate to HMRC more cooperation and so may reduce any penalties that might be sought, but you do not have to attend if you have appointed an Agent.
3. If you are having a meeting, you may feel more comfortable being accompanied by a friend or adviser, especially as they may be able to take notes for you. 
4. You can request the meeting be held at a place of your choice rather than at HMRC offices.
5. Always ask HMRC for an agenda before the meeting, so you can be fully prepared. And ask how long HMRC think the meeting will take.
6. You have a right to privacy, so you do not have to discuss your tax affairs in front of anyone else unless you choose to do so.

1. During and after the meeting

1. Ask HMRC to set out their concerns at the start. This will help you decide whether you think their questions are reasonable.
2. Keep to the agenda. If further matters are raised that do not arise from items already discussed, point this out and ask to get back to the agenda. If, on the other hand, it is something that you can deal with quickly, you may wish to answer, but point out that you are making an exception in answering a point that was not on the agenda.
1. This is often when matters can become confusing and possible outside the scope of the initial enquiry.  Often it is better to park the point, check our records and return to the point once you have double checked any possible contentious points.
3. Do not be afraid to say you cannot remember something – this can be as a result of stress at the meeting. You can send on more information later.
4. If you do not understand anything, ask! You can also ask the officer to explain why they want to know something.
5. You can ask for the meeting to be ended at any time or ask for a break. Do not allow yourself to be intimidated.  The meetings are stressful and you should not proceed if you feel unwell or uncomfortable.
6. Always ask for a copy of HMRC’s notes of the meeting. Check them carefully and compare them to your own or your Agents notes. Ask for any mistakes or misinterpretations to be changed, this often does not get done and can create problems later as the enquiry progresses.
7. If you disagree with anything in the notes, put your concerns in writing. Also, if on reflection you think any of the information you gave in the meeting was incorrect or incomplete, this is your opportunity to put it right now. Do not delay in correcting any errors if the HMRC notes are delayed.
8. In a simple enquiry, you should have no qualms about signing notes of a meeting as long as you are satisfied they are correct.

1. Closing the enquiry
1. Ideally there will be nothing for HMRC to require further work and the matter can be closed.
2. If there is anything it can sometimes mean agreed adjustments if errors have been found.
3. You can also ask HMRC to confirm if you have claimed all allowable reliefs and allowances
4. If HMRC decide to charge penalties, there is a general format for the application penalties. And they can be accessed here.

Penalties Explained:

https://www.gov.uk/hmrc-internal-manuals/compliance-handbook/ch403202

What happens at the end of an enquiry?

My enquiry is finished and HMRC have sent me a proposed schedule of adjustments. Do I have to agree with this?

No, but normally this will be made up of adjustments that have each been agreed. If you do not agree then HMRC can issue an assessment based on their figures. You will then have to appeal against that assessment to the First-tier Tribunal.

What if I do agree with the proposed schedule of adjustments?

HMRC will then issue you with a contract settlement agreement. It will show the tax payable and will ask you to make an offer to fully settle the tax together with any interest or penalties that might be charged. Normally HMRC will provide you with a guide of the sum that they expect and they should also issue you with a Penalty Explanation Letter. Although interest will be charged automatically, you should check the penalty charged carefully as you are still able to negotiate the penalty position.

I have been asked to sign a statement of assets and liabilities. Do I have to complete this?

This statement shows all of your assets and liabilities at a particular date. If you are married or in a civil partnership it normally includes those of your spouse or civil partner too. You do not have to sign such a statement, but if you refuse HMRC may well think you have something to hide. Take great care when you sign the statement as if it is later shown to be inaccurate, you could be charged higher penalties in the future.

I have agreed all the figures in the contract settlement. When do I pay the tax?

It will be due 30 days after you sign the offer document. If you will not be able to pay the whole sum in that timescale, you should tell HMRC as soon as possible. They may allow you up to six months to make the payment. Of course, the interest charge will increase slightly if you do not pay within 30 days.