Myths about HMRC's powers means it can overreach in civil inspections, experts warn

Accountants and tax advisors have been warned that myths about HMRC’s powers means it can overreach during civil inspections, according to experts at the Professional Fee Protection’s (PfP) annual Tax investigations Conference.

At the conference, John Cassidy, partner at Crowe UK, said these myths need to be dispelled to avoid HMRC from pursuing such investigations.

Kevin Igoe, Managing Director at PfP, agreed with Cassidy in a separate interview: “We see this time and time again – the same things that HMRC are asking for when they are trying to do what they are not entitled to. During unannounced visits, taxpayers are not explained their rights when they go in.”

Below is a list of four common myths about HMRC’s powers, followed by an explanation of what HMRC can and cannot do during civil investigations carried out under Schedule 36 of the 2008 Finance Act.*

1. HMRC can search for documents during an inspection. During an inspection, it can ask to be shown any document kept under tax law. However, officers are not entitled to go searching for what they have not been provided access to.
2.  HMRC can inspect any document it want. There are various restrictions on what documents can be inspected. For example, inspecting documents which are older than six years requires an extra internal HMRC authorisation. Tax advice documents and legally privileged documents are also strongly protected.
3. HMRC can enter the premises when making an unannounced visit. HMRC’s civil inspection powers do not include forced entry.  A taxpayer who refuses to allow entry, or who asks HMRC to leave part way through an inspection, will be obeyed.
4. HMRC can require a business to add up sales revenues. HMRC can inspect assets on the premises which includes cash. However, HMRC has no power to require a business to ‘cash up’ during an inspection – this means adding up the cash generated during a trading period.

*In a criminal investigation HMRC can do far more if acting on a judicially authorised search warrant.

In addition, management can conduct a few steps to reduce the impact of HMRC, should it decide to proceed with an inspection. For example, businesses can invite inspectors in a private room, ensure the inspection notice has been signed by an authorised officer, and call an accountant immediately.

Whilst it was argued that HMRC can overreach its power to lead investigations, many also suggested that accountants should ensure clients become aware of the myths on HMRC’s rights.

Igoe commented: “HMRC will look to push the envelope where it can so it’s crucial advisors make sure their clients are aware of their rights.

“These myths mean that businesses could find themselves handing over documents and assets that they didn’t need to do. This can result in problems if HMRC then uses what it finds to launch a full-blown investigation.”

He added: “As far as unannounced visits, from our perspective, we’ve written a fact sheet for a number of our accountants sending it to their clients. It is important that accountants warn their clients that these visits can occur and what their rights are.”

PfP’s annual Tax Investigations Conference enabled to open the debate on HMRC’s rights and powers to investigate – highlighting key facts for accountants and professionals to acknowledge for future inspections.

When asked about the main cause behind the issue, Igoe believed inspectors today are under so much pressure to collect tax that they are blindly following their superiors, underlining the training issue within the profession which can result in tax officials overstepping the line.