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Investigation Tips Direct from HMRC

Mark McLaughlin warns that HMRC officers are generally well prepared for meetings with taxpayers and agents during self-assessment enquiries

A meeting with an HMRC officer is hardly a prospect that most taxpayers will relish. Taxpayers who file self-assessment returns face the possibility of an enquiry into a return, so a meeting with HMRC is not as unlikely as some taxpayers (or agents) might think.

This article assumes that the taxpayer is a business owner who agrees to a meeting with HMRC during a tax return enquiry. However, it is important to note that there is no obligation to attend a meeting (although criminal investigations are another matter).

HMRC can’t wait to meet!

HMRC’s policy on meetings is summed up in its Enquiry manual (at EM1822), in the context of an enquiry into a business taxpayer’s return: “Meetings with the taxpayer are an important part of enquiry work… Meetings are often the best way to find out the facts about a business and give you and the taxpayer the opportunity to discuss the identified risks and how you have arrived at any conclusions you have already reached.”

What’s the purpose?

‘Know thine enemy’ is a well-known phrase, which admittedly is a little melodramatic in the context of meetings with HMRC! Nevertheless, the metaphor is a valid one. It is important to be mindful of what HMRC is seeking to achieve from the meeting. This will depend on the stage of the enquiry.

For example, a meeting at the start of the enquiry might involve a fact-finding exercise by HMRC, whereas a meeting at the end of the enquiry could involve discussing any necessary tax return adjustments, and possibly additional tax, interest and penalties.

In general, HMRC’s guidance to its officers points out that meetings may help to achieve the following:

  • Find out the facts about a business, how it is run and the records kept.
  • Understand how transactions have been treated for taxation purposes and how they have been recorded.
  • Find out the facts about the proprietor’s or directors private financial affairs.
  • Explain the reasons for your enquiry.
  • Address risks you have identified.
  • Establish whether the taxpayer wishes to disclose any omissions or inaccuracies.
  • Agree what action is required and by whom to move the enquiry towards a conclusion.
  • Ensure that, where omissions have been found, the taxpayer is aware what offence may have been committed, the likelihood of penalties and of the benefits of co-operating in reaching a settlement at the earliest possible date. You should also issue the relevant penalty factsheets.
  • Quantify and agree the omissions and/or inaccuracies, and establish the underlying behaviours that led to them, and if any penalty reductions can be given.
  • Discuss and agree what payments on account are to be made.
  • Agree on what basis the enquiry can be settled.
  • Agree a contract settlement where this is appropriate.

The HMRC officer will ultimately focus on any potential problem or risk areas and will normally have prepared thoroughly for the meeting. Taxpayers and advisers should seek to do the same as far as possible.

Accepting tips

HMRC’s guidance includes tips for its officers when dealing with face-to-face meetings (at EM1865). An awareness of these tips may help taxpayers and advisers to prepare for meetings. The main points from these tips include:

1) The HMRC officer is advised to put the taxpayer at ease. For business taxpayers, an opening meeting might therefore start off with those areas which are familiar to the taxpayer, such as the general running of the business.

2) The HMRC officer must be careful when enquiring into the taxpayer’s standard of living and private assets (e.g. the taxpayer’s human rights must be respected).

3) The HMRC officer’s questions should be tactful. The taxpayer and adviser need to be aware that general enquiries about lifestyle may develop into deeper, more probing questions, and should therefore ensure that the information is reasonably required.

4) The taxpayer and adviser should be prepared for questions seeking to establish possible explanations for unidentified receipts, etc. (e.g. gambling winnings, inheritances), if appropriate.

5) The HMRC officer is advised to ‘be firm and ensure that you do find out what you need to know’. Of course, the taxpayer and adviser should ensure that the HMRC officer does not stray beyond reasonable boundaries.

6) A short break from the meeting may be requested, if the HMRC officer does not offer one.

7) When the HMRC officer’s questions have been asked, the taxpayer should be given the opportunity to add any points considered to be relevant.

Other practical points

Aside from being aware of HMRC’s likely approach to a meeting, some practical points to consider in connection with meetings include the following:

  • Ask the HMRC officer for a detailed agenda for the meeting.
  • Consider meeting at a ‘neutral’ venue, such as the agent’s offices. Meetings at the taxpayer’s premises should generally be avoided, unless there is a good reason for holding a meeting there.
  • Take detailed notes at the meeting (and preferably bring someone along to take notes).

Finally, if HMRC prepares notes and sends a copy to the taxpayer and/or agent, check them carefully and point out any inaccuracies and omissions as soon as possible. Otherwise, it may be difficult to rebut them later (see Duffy v Revenue and Customs Commissioners [2007] SpC 596). HMRC’s notes should not (in my view) be signed by the taxpayer or agent, even if no amendments have been made.

This article is taken from HMRC Enquiries Investigations and Powers E-Magazine

By Mark McLaughlin