…figuratively speaking of course. Now we are all effectively on lockdown, they shouldn’t be coming near you in person for a while (and that’s a topic for another post).
A version of this article was published on the Taxation Magazine blog and can be accessed here.
What to do when you receive a notice of enquiry/investigation or an assessment from HMRC
As we adapt to the Corona Virus, many things are changing, not least our working practices. Many of us are working remotely in an attempt to limit contact with others and as a result, post arriving at the office will remain unopened for a while. For business owners and accountants in the run up to the end of the financial year, this can be problematic, particularly considering that HMRC too have adapted their working practices. LTN have been advised that although many HMRC officers are working remotely, some functions are carried out separately and will continue almost as normal. This includes risk assessment of errors and underdeclaration of tax by individuals and businesses as well as the issuing of assessments where there is an ongoing investigation or a known risk.
The deadlines for issuing assessments and opening investigations vary depending on behaviour and location of the relevant assets, however the majority of these deadlines are subject to the letter being received by the taxpayer on or before the end of the tax year.
With this in mind, the below points are practical reminders of what should be undertaken by an accountant or tax adviser on receiving letters from HMRC.
1) Check the time limits
If a notice of enquiry, the notice should have been received by the taxpayer within 12 months of the filing deadline (i.e. 31 January) assuming the return was filed on time). If the return was filed early, HMRC have exactly 12 months from the date of filing to open the return. If it was filed late, HMRC have 12 months from the end of the quarter day after filing for their notice to be received.
This means that if a 2017/18 return was filed any time between 1 February 2019 and 30 April 2019, HMRC have until 30 April 2020 to issue a notice of enquiry.
A lot of people are working remotely and therefore will be unable to identify exactly when letters arrive. If at all possible, ensure that there is someone in the office as frequently as possible to date stamp letters coming in (and those that have already arrived). Any letters that arrive after relevant deadlines should then be easily identifiable and can be appealed against if appropriate. Note that the legislation requires the letters to be delivered to the taxpayer’s last known address. Therefore, it is likely that unless the taxpayer is resident overseas, they will also receive the letter and should inform you immediately.
Arguably the more important deadline is 5 April – the deadline for raising assessments or opening an investigation is (generally speaking) 4, 6 or 20 years from the end of the relevant tax year. We say “more important” because HMRC have 4 years from the end of a relevant tax year to open an investigation even if they consider a person to have taken reasonable care. Even if an enquiry is out of time, an investigation may not be.
2) Which department issued the notice?
Understanding who the notice is from can indicate the seriousness of the enquiry/investigation. For example, a letter from the local compliance office is likely to be a lot less serious than a letter from the offshore evasion unit.
3) Identify what the issue is
…is the letter an information notice, an assessment or a notice of enquiry or investigation?
HMRC investigations are usually issued under CoP8 (serious cases) or CoP9 (suspected fraud). Either case needs careful handling to ensure the client remains protected whilst cooperating with HMRC. Investigations are different for each person depending of whether the investigation relates to their personal or business circumstances, and can then extend to business or personal areas depending on how far the underdeclaration goes. The aim here is to reach settlement with HMRC as quickly as possible, whilst ensuring that correct taxes are collected and penalties kept to a minimum.
If the letter is a notice of enquiry, the first thing to identify is the type of enquiry – full, aspect of random. As HMRC’s risk assessment tools become more sophisticated, random enquiries become less common. As such, best practice is to assume HMRC have identified a risk, regardless of whether that risk has resulted in an error. In cases where the enquiry type is unclear, it is worth calling the officer to discuss the matter. In most cases (except serious fraud), HMRC officers are happy to discuss cases with authorised agents to reach a better understanding of the case and hopefully an efficient resolution.
Where information is provided in relation to aspect enquiries where the documents are not reviewed beforehand, we have seen what should have been a relatively simple matter spiral into a fully fledged investigation over a number of years. It is essential that advisers are aware of exactly what is submitted and that relevant transactions (for example) have been challenged before the information is passed to HMRC.
Assessments can be issued at the end of an enquiry/investigation or during the course of an ongoing investigation to “protect” HMRC’s position by ensuring that years which would otherwise be “out of time” remain open. In some cases, a client may be issued with a discovery assessment, where new information has recently come to HMRC’s attention in relation to your client’s tax position and which they consider has led to an underdeclaration. In this case, time limits must be checked as well as considering whether the discovery is still valid or whether it has “gone stale”.
Whilst an Information Notice may appear the most benign it it likely a precursor to a more serious investigation if the questions are not answered correctly and in full. We note that Information Notices are usually a last resort where informal requests or requests as part of an enquiry have not been responded to in full. That said, it is important the information provided to HMRC is limited to what they are permitted to request and what you are required to provide. See below.
4) Information notices – is it reasonable, relevant and in the person’s power or possession?
The legislation in relation to information notices is broad when considering the information HMRC are entitled to request. When reviewing an Information Notice, you should consider whether the information requested is reasonably requested, relevant to determining the client’s past, present or future tax position and whether it is in their power or possession. Further details on Information Notices can be found here.
5) Talk to your client
Before responding to HMRC, it is essential to speak with your client and make sure you and they both understand the situation. Does the client fully understand the seriousness and implications of the letter? And do you know everything about your client’s affairs – both in the UK and overseas?
To provide the best protection for your client and to guide them correctly, it is essential that you know what you are dealing with. Any response to HMRC will be retained on record by them. If it comes to light later on that the response was incorrect, questions will be asked as to how this happened and could affect penalties further down the line.
6) Time limits to respond
Wherever possible, respond to HMRC within the time limits given, usually 30 days from the date of the letter. If it will not be possible to do so, call or write to HMRC explaining the reasons and requesting an extension. HMRC recognise that in some cases, it may not be possible to respond in time and HMRC tend to provide extensions where the reasons given are reasonable.
Ignoring HMRC’s letter will not make the issue disappear. It is however likely to have the opposite impact and raise the client’s profile. The most effective way to protect the client and to resolve HMRC issues is to enter into dialogue with HMRC, and work with them from the beginning.
HMRC understand that CoVid19 may have impacted agents’ workflow and ability to pick up post. If this has affected you, you are advised to contact HMRC as soon as possible on receipt of the correspondence and alert them to the situation. If a client has been unwell (with CoVid or otherwise), they are advised to obtain a doctor’s note. Others who are affected by issues with time limits as a result of self-isolation are advised to obtain an “Isolation Note” from NHS111.