HMRC is relaxing parts of its regime for investigating taxpayers and businesses it believes may have under-reported tax liabilities correctly, but individuals and firms have been warned not to be lulled into a false sense of security, reports Pat Sweet
Fiona Fernie, tax dispute resolution partner at Blick Rothenberg, said: ‘HMRC is writing to taxpayers under enquiry acknowledging that during the current lockdown they are being instructed not to request information or documents and not to press for responses to requests already made.
‘Indeed, in some cases they are suspending enquiries at this difficult time.
‘Whilst this may seem to be welcome news, there may be good reasons to press ahead if taxpayers or their businesses are already under enquiry.’
A code of practice 9 (COP 9) tax investigation is authorised by HMRC in cases where the tax authority believes an individual or company may have committed a serious tax fraud.
The recipient of COP9 is given the opportunity to make a complete and accurate disclosure of all their deliberate and non-deliberate conduct that has led to irregularities in their tax affairs.
Where HMRC suspects that the recipient has failed to make a full disclosure of all irregularities, it reserves the right to start a criminal investigation with a view to prosecution.
Those under investigation are required to respond to the initial letter within 60 days and then to provide the information required for the contractual disclosure facility.
Tax barrister Patrick Cannon said current experiences suggests HMRC accepts that if a taxpayer is either ill with coronavirus or self-isolating it would not be reasonable for them to visit business premises for example in order to obtain copies of documents subject to a Schedule 36 information notice.
However, if it was reasonable to get someone else to obtain that information on the taxpayers behalf then they would expect that to happen.
‘The exception is where HMRC assessing time limits are about to expire, for example where the four year period for issuing a discovery assessment is rapidly approaching or where HMRC are concerned about the solvency of a taxpayer or there is a risk that the taxpayer will dissipate their assets leaving little or nothing for HMRC to recover.
‘In such cases I understand that HMRC will understandably do whatever is necessary to protect the revenue and secure their position,’ Cannon said.
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Fernie cautioned that putting off HMRC’s queries may not been the best option for all, as many individuals and companies will need to focus on recovery once the coronavirus crisis ends, and HMRC’s questions will inevitably distract attention from that.
‘For individual taxpayers and businesses whose activities are currently curtailed, it would be sensible for them to use the time they have now to deal with HMRC rather than store up problems for the future, although clearly employees who are furloughed cannot be involved in responding to HMRC enquiries on behalf of their employers.
'After all, if tax is due – it is still going to be due when we come out of this,’ she said.
The firm also warns that this is a good opportunity for businesses to make sure their house is in order, particularly for those who are taking advantage of the job retention scheme (JRS) as HMRC CEO Jim Harra has already highlighted the department’s concerns around the potential for fraud.
Robert Salter, Blick Rothenberg director specialising in expatriate and employment tax support for fast-growing entrepreneurial businesses, said: ‘It is vital for legitimate businesses to ensure that they correctly document and evidence any claims that they make for JRS grants in respect of their furloughed employees, if they wish to avoid any future audit challenges from HMRC in respect of these claims.
‘This is particularly important in this situation, as one of HMRC’s main weapons against JRS fraud will realistically be tax enquiries and reviews, once the initial coronavirus chaos and confusion has subsided.’
Salter highlighted that amongst the evidence which businesses claiming JRS support should retain are an assessment showing impact of coronavirus on the business and how this justifies the furloughing of staff; clear calculations backing up the amount being claimed under the JRS; and formal written paperwork between the employer and employee backing up the furlough arrangements and the parties agreement to these.
He said: ‘Companies which fail to document their claims under the JRS risk having to refund the money in future, (plus potentially interest and penalties / surcharges), if they are unable to defend the amounts being claimed today.’
HMRC has published new guidance on the criteria it uses for publishing details of deliberate tax defaulters who have been subject to compliance investigations, in a listing which is updated each quarter.
A government spokesperson told Accountancy Daily: 'The government has announced an unprecedented support package for business and workers to help them through this economic emergency.
'It is right that HMRC does everything possible to protect individuals, businesses and that the economy during this extremely difficult time. This includes prioritising work to support businesses and individuals.
'HMRC will always take tough action against fraudsters who attempt to deprive the UK of the public funds the government needs to support the nation at this difficult time.'
Report by Pat Sweet