HMRC flexes its muscles with company probes

The insurance industry has claimed the taxman is ratcheting up the number of probes into businesses’ corporate tax, VAT and PAYE payments following the introduction of new powers.

On 1 April 2009 HMRC was allowed more scope to request and examine company records and insurers are now seeing a hike in the number of claims for the cost of accounting support during an investigation.

The insurance is purchased by accountants on behalf of businesses and in the period January to September 2008 Abbey Protection received 1,416 claims compared with 1,347 claims in the same period in 2009, but this includes a slump in requests before the new rules kicked in.

"Unsurprisingly, we saw a reduction in the number of insurance claims being made by accountants in the first quarter of 2009 as presumably HMRC was waiting for the new powers to come into force before launching enquiries,” said David Marples, consultancy manager at Abbey Tax Protection.

The numbers of claims received in September 2009 were 25% higher than in September 2008 as Abbey received 154 compared to 128 year-on-year.

"This would suggest that the HMRC enquiry ‘machine’ is now fully switched on,” said Marples.
Marples also flagged up the fact that HMRC is increasingly giving consideration to ‘cross-discipline’ issues whenever an enquiry is opened. These issues means businesses may be hit with tax, VAT and
PAYE enquiries at the same time.

Customer letters seen by Accountancy Age show that the taxman is either tasking one investigator to handle all the probes, or informing businesses that VAT or PAYE investigators have also been called in.

"This may help HMRC reduce the number of checks they carry out overall but that is little comfort to the business selected for an enquiry who will effectively be subjected to three enquiries at once.”

"This approach is likely to increase the accountancy costs of dealing with the enquiry,” said Marples.
He warned that after identifying errors on a return under enquiry, HMRC will also seek to make adjustments to earlier years returns using its “presumption of continuity” powers, further increasing the workload on businesses.

"Where HMRC is looking to scale back adjustments into much earlier years it may be necessary to challenge the position and again, this is likely to increase the accountancy costs of the defence.”

An HMRC spokesman said: "HMRC looks at compliance risks across the whole business spectrum, and carries out targeted action where appropriate.

"The new information powers, introduced in April 2009, represent a sensible aligned approach to maintaining the tax system. They allow HMRC to work more effectively and reduce the burden on compliant taxpayers."

IN OUR VIEW

The taxman is clearly right to ensure that business are paying the correct amount of tax but must also make sure that the burden of an enquiry does not become too heavy.