HMRC Compliance Checks and penalties

HMRC Compliance Checks

From 1 April 2009 HMRC have one set of powers to visit business premises which covers all business taxes – corporation tax, income tax, capital gains tax, PAYE, CIS and VAT. They can inspect business assets and documents, including those of third parties where they consider it is reasonably required to check the current tax position of the taxpayer.

Key aspects of the new legislation provide HMRC with:

• the ability to see statutory business records without the right of appeal,
• the ability to look at records for PAYE, CIS, income tax, capital gains tax and corporation tax during the tax year before a return has been submitted, and
• a single approach across all taxes to asking taxpayers and third parties for supplementary information based on formal information notices with a right of appeal.

HMRC is required to give at least 7 days’ notice prior to a visit unless either an unauthorised visit is necessary or a shorter period is agreed. There is however a statutory restriction on inspecting purely private dwellings without consent.

New penalties

HMRC has changed the way that penalties are charged where there is an error in the tax return or other documents that are filed after 31 March 2009. The new penalties start at 100% of the unpaid tax and can be reduced based on the quality of the disclosure. This includes:

• telling HMRC about the error without prompting,
• helping HMRC work out the extra tax due and
• giving HMRC the records it needs to check the extent of the error.

The new system also introduces a suspended penalty in certain circumstances.

The new penalty system is more severe where the tax return is wrong and a full unprompted disclosure is not made and/or full cooperation with HMRC is not given. It is designed to encourage better compliance. If you have any questions regarding the new penalties and compliance checks, please do not hesitate to contact us.

May 2009