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This is a freeview 'At a glance' guide to HMRC's powers to inspect business premises.

HM Revenue & Customs (HMRC) were given new powers of inspection of business premises in the 2008 Finance Act. They apply from 1 April 2009.

At a glance

HMRC have powers to inspect business premises.

Key points for business owners:

Overview

HMRC may inspect a person’s:

Business premises, together with business assets and business documents.

Why?

If the inspection is reasonably required:

What about private dwellings?

Third-party premises

HMRC may inspect the premises of a category of persons called “involved third parties” for income tax purposes. These are listed in Paragraph 61A of the 2008 Finance Act and include:

Inspection timings:

Announced visits

Unannounced visits

Why?

On grounds that it would prejudice tax collection to warn the taxpayer of a visit.

When?

In these circumstances HMRC must provide a notice which states:

The notice must be presented to:

Note that an unannounced visit does not require the Tribunal’s approval.

Inspection conditions: valuations

Two alternatives:

  1. HMRC must give a notice, in writing, to the occupier, or if they cannot be identified or if the property is vacant, to the person who controls it.
  2. The inspection has been agreed by the First-tier Tribunal and the relevant person has been given at least 7 days notice, in writing of the inspection.

The notice must state:

Approval by the First-tier Tribunal

Further powers

HMRC has powers:

Restrictions

Note: if your practice is subject to an announced visit you will need to be extremely careful about the information that you provide because of taxpayer confidentiality. Obtain legal advice before handing over any documents.

Taxpayer notices

When a taxpayer has made a tax return, a notice cannot be issued for the purpose of checking that person’s tax position in relation to the chargeable period, except if any of the following conditions apply:

1. A notice of enquiry has been given in respect of:

And the enquiry is still open.

2. An officer of HMRC has reason to suspect that as regards that person:

3. The notice is given for the purposes of checking the VAT position.

4. The notice is given for the purposes of checking PAYE.

5. The notice refers to information or documents that relate to a herd basis election (see below).

6. It appears to an officer of HMRC that a counteraction provision may apply:

Similar provisions exist for land transaction returns.

Right of appeal

A taxpayer has limited rights of appeal against a notice or requirement in a notice. No appeal is possible if:

Where a third party is given a notice, it may appeal it on the grounds that it would be unduly onerous to comply with the notice or requirement, unless the notice was approved by the First-tier Tribunal.

How to appeal

In writing, to the HMRC officer within 30 days of being given the notice.

Special cases: third parties

Neither taxpayer agreement or Tribunal approval is needed in the case of a third-party notice that relates to:

Partnerships

The same restrictions as apply to taxpayer returns apply to returns or claims or elections made by individual partners.

When a third-party notice is given in respect of checking the tax of more than one partner it need only specify the name of the partnership and its purpose. The rules covering notification to individual partners of a third-party notice do not apply.

The herd basis

HMRC has the power to check a herd basis election, irrespective of whether or not the taxpayer has submitted a tax return.

Information from persons liable to counteraction of a tax advantage

The restrictions which apply when a taxpayer has made a tax return are disregarded if:

It appears to an officer of HMRC that a counteraction provision may apply to the person by reason of one or more transactions, and the notice refers only to information or documents relating to any of the transactions.

"Counteraction provision" means:

Tax penalties

Penalties apply for:

Adviser essentials

Unannounced visits

Unannounced visits to premises are only likely to occur in serious cases where tax fraud is suspected. However, there have already been reports of visits occurring in what the advisers who are acting at the time, say they think are low risk cases.

HMRC does not share its risk assessment methodology but cash businesses are obvious targets, especially when they they are fast food outlets. 
Useful links: Risk assessment review for sole traders/partners

Announced visits

HMRC will contact a taxpayer in order to plan an announced visit. It is essential to advise your clients to make sure that they keep a written record of the conversation (HMRC will certainly do so). It is open to them to record it if that is more practical, but only if HMRC's officer consents to this.

Why take notes of phone conversations?

This is discussed in the article, If HMRC calls you, take notes.

Tip for advisers: brief your clients on the procedure to follow if HMRC calls, and ensure that they or their staff know what to do. 

If HMRC asks a substantive question, a note should be taken of it and HMRC should be asked to agree to a considered, written response. If HMRC insist on an immediate response in the context of a Tribunal approved inspection an immediate response should be given.

Can HMRC request to inspect private records?

HMRC does not want to conduct fishing expeditions, so it will consider:

before it demands private records; this does also depend on what the taxpayer has confirmed in its initial enquiries.

Details of private bank accounts: will be requested when:

Announced visits: 64-8 problems for advisers

HMRC will not inform a tax agent that it is visiting your client unless it has a 64-8 in place covering all the taxes which are going to be reviewed in that visit.