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New Information and Inspection Powers for HMRC

19th March 2009

Information notices

Under the new rules HMRC will have power to issue three types of “information notice”:

  • A taxpayer notice;
  • A third party notice; and
  • A notice about a person or persons whose identity is not known.

Taxpayer notice

If an officer of HMRC reasonably requires information or a document in order to check a taxpayer’s tax position, the officer will have power to serve a notice on a taxpayer requiring the taxpayer to provide the information or to produce the document concerned. Such a notice is known as a “taxpayer notice”.

Conditions for issuing a taxpayer notice where certain returns have been made where:

  • an individual or trustee has made a tax return,
  • a partnership tax return has been made, or
  • a company tax return has been made

A taxpayer notice may not be given as regards a tax covered by the relevant return unless one of four conditions is satisfied.

The first alternative condition (Condition A) is that a notice of enquiry has been given in respect of the return, or in respect of a claim or election (or amendment thereto) relating to the relevant chargeable period, and the enquiry has not been completed.

The second alternative (Condition B) is that an officer of HMRC has reason to suspect that:

  • an amount that ought to have been assessed to relevant tax for the chargeable period may not have been assessed,
  • an assessment to relevant tax for the chargeable period may be or have become insufficient, or
  • relief from relevant tax given for the chargeable period may be or have become excessive.

The third alternative (Condition C) is that the notice is given in order to obtain any information or document that is also required for the purpose of checking the taxpayer’s VAT position.

The fourth alternative (Condition D) is that the notice is given in order to obtain any information or document that is required (or also required) in order to check the taxpayer’s position as regards PAYE, the construction industry tax deduction scheme or any other provision of the Taxes Acts.

Conditions B, C and D give HMRC much broader powers to make enquiries than the “old” (pre-April 2009) rules. They undermine the principle (embodied in Condition A) that, after a self-assessment return has been made, HMRC have a fixed period to start enquiries into the return. A taxpayer who is not at fault can still be required to produce information or documents after the normal enquiry period has ended.

Third party notice

If an officer of HMRC reasonably requires information or a document in order to check the tax position of another taxpayer whose identity is known to the officer, the officer will have power to serve a notice on any person requiring that person to provide the information or to produce the document concerned. Such a notice is known as a “third party notice”.

A third party notice can only be served if the taxpayer agrees or the First-tier Tribunal approves. (Like the new powers discussed in this note, the new Tribunal system, involving a First-tier Tribunal and an Upper Tribunal, will come into effect in April 2009.) Unless the First-tier Tribunal agrees otherwise:

  • the notice must name the taxpayer; and
  • the officer of HMRC who serves a third party notice must also serve a copy on the taxpayer to whom it relates.

Notice about persons whose identity is not known

An authorised officer of HMRC will have power to serve a notice on a person requiring that person to provide information or to produce a document if the officer reasonably requires the information or document for the purpose of checking the UK tax position of:

  • A person whose identity is not known to the officer, or
  • A class of persons whose individual identities are not known to the officer.

An officer of HMRC must obtain the approval of the First-tier Tribunal before serving this type of notice.  The First-tier Tribunal may not give its approval for the purpose of this paragraph unless it is satisfied that:

  • The information/document is reasonably required as mentioned above;
  • There are reasonable grounds for believing that the person or any of the class of persons to whom the notice relates may have failed or may fail to comply with any provision of the Taxes Acts, the VAT Act 1994 or another enactment relating to VAT;
  • Any such failure is likely to have led or to lead to serious prejudice to the assessment or collection of UK tax; and
  • The information or document to which the notice relates is not readily available from another source.

Rights of appeal against information notices

There will be certain rights of appeal to the First-tier Tribunal against information notices.

Where, however, the First-tier Tribunal has approved a taxpayer notice or a third party notice before it is served, there will be no right of appeal against the notice concerned.

A decision by the First-tier Tribunal on an appeal against an information notice will be final.

Powers to enter business premises to check tax position

An officer of HMRC will have the power to enter a person’s business premises and inspect:

  • The premises;
  • Business assets that are on the premises; and
  • Business documents that are on the premises,
if the inspection is reasonably required for the purpose of checking that person’s tax position.

In this context references to a business include:
  • the letting of property;
  • the activities of a charity; and
  • the activities of a Government department, a local authority, a local authority association and any other public authority.

Powers to enter premises used in connection with the supply or acquisition of goods, or as a warehouse

  • There is a similar power where an officer of Revenue & Customs has reason to believe that:
  • Premises are used in connection with the supply of goods under taxable supplies and goods to be so supplied are on those premises;
  • Premises are used in connection with the acquisition of goods from other member states under taxable acquisitions and good to be so acquired are on those premises; or
  • Premises are used as a physical warehouse.

This power does not depend on inspection being reasonably required for the purpose of checking a person’s tax position. It permits an officer of Revenue & Customs to enter the premises and inspect:

  • the premises,
  • any goods that are on the premises and
  • any documents on the premises that appear to the officer to relate to such goods.

Further details of powers of entry

Neither power permits HMRC to enter or inspect any part of the relevant premises that is used solely as a dwelling.

Inspections may only be carried out:

  • At a time agreed to by the occupier of the premises, or
  • At any reasonable time if:
    • The occupier of the premises has been given at least 7 day’s notice of the time of the inspection (whether in writing or otherwise), or
    • The inspection is carried out by, or with the agreement of, an authorised officer of Revenue & Customs.

An officer of HMRC may ask the First-tier Tribunal to approve an inspection.

This means that in certain circumstances inspections can be carried out without any warning to the occupier.

Restrictions on information notices

There will be various detailed restrictions on the scope of information notices. For example:

  • An information notice given for the purpose of checking the tax position of a person who has died may not be given more than 4 years after the person’s death.
  • There is an exemption for information and documents covered by legal professional privilege. There are somewhat similar exemptions for auditors and tax advisers.

Taxes to be covered by the new powers

These powers will apply to income tax, capital gains tax, corporation tax and VAT.

It appears, however, from the 2008 Pre-Budget Report that there are plans to extend the new powers to cover almost all other taxes. This will not occur before April 2010.

Reactions to the scope of the new powers

The features that have caused most comment are HMRC’s new powers:

  • to seek information and documents from taxpayers, even after the normal enquiry period for a self-assessment tax return has expired; and
  • to inspect business premises, even without notice to the occupier.

The powers are not conditional on the person concerned being in any way at fault.

 

 

See also details of our services relating to tax disputes and investigations.

 

Important: This note is simplified; tax law and practice can also change very quickly. Always take detailed, specific advice before taking, or deciding not to take, any action.

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