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Preparing for the Meeting

HMRC Investigations Handbook 2017/18

Edited by: Mark McLaughlin

HMRC officers will prepare extensively for any meeting with a taxpayer and his adviser. HMRC does not have the cost constraints of the taxpayer in preparing for meetings and therefore will be able to devote significant time to such preparation. To ensure that the taxpayer’s and adviser’s preparation is cost effective there should be clarity before agreeing to any meeting on where preparation time should be focused. The following notes are really a counsel of perfection, but as a minimum:

  • the taxpayer needs to be aware of –
    • the background to the enquiry and the meeting,
    • the advantages of being cooperative and making early and complete disclosures;
  • there needs to be consideration of the general areas to be covered at the meeting and the likely areas of particular interest to HMRC;
  • the taxpayer needs to be briefed on –
    • what is likely to happen at the meeting,
    • how direct and open questions should be approached,
    • potentially difficult areas and how to deal with these,
    • the adviser’s role.

The adviser’s knowledge of the client

The adviser should generally review the case and identify strengths and weaknesses. Particular attention should be paid to those areas to which the officer’s attention might usefully be directed if a speedy and beneficial resolution for the client is to be reached. There should be a focus on:

  • the quality of the client’s records;
  • issues arising during the preparation of the accounts and/or tax returns and how these were dealt with;
  • previous tax issues;
  • the position on any previous enquiries;
  • general knowledge of the adviser (and adviser’s staff) of the business and private finances.

Identify any problem areas

If omissions or understatements are identified prior to a meeting with HMRC it is critical that these are considered in some detail and disclosed to HMRC at an early stage. This will signify a constructive and cooperative approach and will assist in optimising the penalty position. If disclosures are not made at an early stage of a meeting but are revealed in a piecemeal fashion, this will have a damaging effect not only on the penalty loading but also on the client’s (and possibly the adviser’s) credibility.

On making a disclosure it may be agreed that an early meeting with the client is dispensed with and the adviser agrees to provide details in writing. This might involve a meeting with the officer to agree the scope of such an approach and a provisional timescale.

If the review process identifies no particular issues it will be useful at some stage to detail the research which has been done and the conclusions reached. Care needs to be taken on the timing of this and usually it will be appropriate once an adviser has established that the officer has ‘fired all the bullets’ or that there are none.

There may be advantages to an adviser starting the process by saying he has looked at the papers and discussed the position in some detail with the taxpayer and that on that basis the return is considered correct. If, however, the officer has strong evidence to the contrary then this risks both taxpayer and adviser looking less than competent (and possibly dishonest!).

Pre-meeting issues

At the time of receiving the opening letter the taxpayer should have been briefed on the background to HMRC enquiries and the likely course that will be taken. In particular the adviser should outline:

  • the obligations to keep proper records;
  • the absolute right to enquire into tax returns;
  • the power to call for relevant documents and particulars;
  • the rights of appeal and review.

The advantages of admitting problems at an early stage should have been spelled out. There will have been a subsequent dialogue on the upsides and downsides of having a meeting at this stage and the client should be reminded of all this.

The adviser may be thoroughly familiar with HMRC meetings but most taxpayers are not, and will experience a fair degree of stress when face to face with an HMRC officer. The taxpayer should be briefed as far as possible on what to expect on the day. Much of the meeting, certainly the opening explanations, issue of HMRC leaflets, etc. will follow a fairly predictable course.

An adviser who deals with HMRC in a mature and professional manner will settle the client. Whilst representing the taxpayer is key, the role of the professional adviser is perhaps best described as a facilitator. The taxpayer will be expected to answer any appropriate questions and should understand this.

As a general rule taxpayers should be encouraged to keep answers to questions factual and concise and to avoid overly lengthy replies. In particular, they should be aware that if they do not know the answer to a specific question then they should not guess and should only provide estimates when they are comfortable doing so. Any false impressions given at the initial meeting may be difficult to correct at a later stage. This is another excellent reason for establishing the key issues to be discussed at any meeting to avoid any surprises for anyone.

The taxpayer should be made aware that HMRC’s usual objective in the early stages of the meeting is to put the taxpayer at ease and get him talking. The taxpayer should be encouraged to:

  • remain calm and avoid aggravating the officer;
  • participate actively and constructively;
  • answer specific questions directly;
  • answer more general questions with circumspection.

The adviser should be prepared to suggest a ‘review and report back procedure’ which should be quite acceptable and may even be expected by HMRC.

The taxpayer cannot be expected to remember details from many years ago. Ideally the request for a detailed agenda will have resulted in identifying such questions before the meeting and appropriate answers given. Areas of weakness should be considered in detail. It is not possible to be prescriptive on what these will be but section 9.8 sets out the areas of interest for the officer and an open discussion ahead of the meeting between the taxpayer and his adviser may suggest some likely issues.

If the officer is looking at private finances in any detail at all then questions will invariably arise in relation to non-taxable sources. See EM2051:

‘Taxpayers may claim that deficiencies … or money introduced were funded from … non-taxable receipts. You should at an early stage in an enquiry try to pre-empt such claims by asking the taxpayer about matters such as cash accumulation, loans and gifts received and so on. If the claim is first made at a meeting you should question the taxpayer closely about it, before he or she has had time to invent plausible circumstances to surround a false story.’

Further general guidance on such matters is given at EM2053 and more specific details are given at EM2056–EM2097, although much of the text is withheld from the public version of the manuals. Common explanations are:

  • cash hoards;
  • betting wins;
  • legacies and sales of personal effects;
  • illegal or immoral activities.

Clearly an adviser should ask the taxpayer about such issues before the meeting, although it may be difficult to raise a specific query on illegal or immoral income. If there are matters of substance in the relevant period then these should be discussed in considerable detail. A good adviser will test whether, applying an appropriate degree of professional detachment, he is satisfied with the explanations given.

In any event the taxpayer needs to understand that HMRC will require evidence to substantiate any claims and the adviser needs to establish how best this can be obtained.

See section 9.25 regarding early disclosure of any irregularities.

One reason for the officer preferring to see the taxpayer is that it helps in forming a view on his overall credibility. The adviser should do all that is possible to ensure that the taxpayer comes across as honest, open, knowledgeable, and helpful. The aim will be to come out of the meeting feeling that the taxpayer would make a very credible witness if appeals were taken to the tax tribunal.

There is no substitute for sound preparation, but note that over-coaching can easily give the wrong impression