HMRC business checks were largely placed on hold during the Covid pandemic. As HMRC hits the restart button, Iain Rankin offers some pointers on how to cope when HMRC comes calling.
It's worth stating at the outset of this article that prevention is always better than cure. Minimising the risk of a business check in the first place is always the preferred option.
To minimise the risk of a business check from HMRC, ensure that any ‘odd’ transactions or unusual activity are explained to HMRC in advance (e.g., in the white box of a tax return).
Prior to the check
HMRC should provide a minimum of one week’s notice of a proposed business check. The check can be carried out at any time agreed to by the business owner; there are no penalties for suggesting alternative times and it is better to do so to ensure the client and adviser have suitable time to prepare. However, continuously attempting to put the check off for a long period of time without any obvious reason is not recommended.
HMRC should be requested to provide a list of the information they are looking for in advance. It is worth reviewing this ahead of time to pick up on any areas of concern. If there is anything that might be contentious, it is possible to decline to provide the information immediately. This should not risk a penalty and buys the client more time.
If the business is (for example) in professional services, it is possible to arrange to have all the information available at the adviser’s office to minimise disruption to the business. It may also, if agreeable to HMRC, be feasible to complete the check remotely. However, this can make the process more drawn out than it might otherwise be.
During the check
Acting courteously and rationally will make the process smoother for all parties. Throughout the check, take notes of what the officers are looking at and the questions they ask. If HMRC wishes to take any documentation, take a copy of it and ask for a receipt.
If the HMRC officer asks for additional information, agree to send it at a later date, after having a chance to review it. This is preferable to trying to recall documents already provided; once information has been seen by HMRC, it is very unlikely to be forgotten. It is important to keep HMRC in check and ensure that the officer asks only for information that is reasonably required, and is in the taxpayer’s possession or power. Also, a business check is not an interrogation; all questions must be relevant to the client’s tax position.
The client should not under any circumstances conceal or destroy documents that have been requested by HMRC.
After the check
After the visit, HMRC will normally write to the taxpayer and their agent, summarising the result of the business check. If the officer has everything they need, they may raise an assessment against which the client can appeal if necessary. Alternatively, they may request additional information.
The adviser should review HMRC’s notes of the check to ensure that they match their own, make note of any areas of contention and bring them to HMRC’s attention. They should do similar if anything of relevance has come to light after the check.
Practical tip
The key to any business check is for a dialogue to be maintained between the adviser, the client and HMRC. A proactive approach will help streamline the process and should settle the matter more quickly. Obstructing HMRC without a reasonable excuse will result in a more drawn-out process, with a greater risk of penalties.
