It is a worrying image. Teams of Inland Revenue inspectors, beefed up by ranks of newly recruited accountants, are said to be roaming the country terrorising tax managers with on-site audits and a slicker, more co-ordinated approach.
It’s all part of the new corporate tax self-assessment scheme.
New powers to investigate companies’ tax affairs granted to the Revenue under the corporate self-assessment system are expected to increase the risk to businesses of teams of tax inspectors arriving on their doorstep demanding to comb through accounting records.
The changes will bring a more intrusive Revenue, with corporation tax audit teams visiting companies’ offices in the same way they do for PAYE and VAT.
The focus will change from reviewing all returns to making random enquiries.
Traditionally, contact with the Revenue has consisted of polite correspondence and the occasional meeting. The new approach therefore marks a major change in the relationship with their tax inspectors.
The new rules are the last of a raft of measures put in place to step up the Revenue’s investigatory powers and activities, in an effort to cut down on corporate tax evasion.
The measures include a spend-to-save programme – designed to step up investigations into large companies and international transactions – and an initiative called co-ordinated case-working, which is designed to increase liaison and communication between tax inspectors and collectors working in different areas – for example between PAYE and corporate tax. Tax experts warn companies are already feeling the effect of these, and that more will do so as corporate self-assessment starts to bite.
Alastair Kendrick, a senior tax manager at KPMG says: ‘The effect on companies who have been subject to co-ordinated case-working reviews cannot be underestimated.’
‘These reviews have created a substantial burden on tax departments who have found it difficult to cope with a number of different Revenue enquiries at the same time, while trying to meet the deadlines for corporate tax.
This will only worsen with tighter deadlines and the penalty approach under corporate self-assessment.’
He adds: ‘One area that particularly concerns me is that the Revenue has not always been upfront that enquiries are part of this new approach.
Case directors have, on a number of occasions, requested meetings with tax departments to discuss particular corporate tax issues at which Revenue specialists from other areas have unexpectedly turned up.’
Kendrick adds he has come across instances of PAYE audits when the auditors had suddenly called in tax inspectors.
Like most other firms, KPMG has increased the size of its tax investigation teams to deal with these changes.
Cynics suggest firms are indulging in scare-mongering in order to drum up business, saying that suggested scenarios of dawn raids by teams of inspectors are unrealistic and exaggerated. ‘There are a number of people who are scaring companies on the basis that Armageddon is coming,’ according to one partner in a leading accountancy firm, who asked not to be named.
But others say there is already evidence that the Revenue is taking its new powers seriously. A tax manager of a large plc, who again declined to be named, says business contacts in similar jobs are receiving an increasing number of letters from the Revenue requesting site visits and even tax audits.
Aileen Barry, a tax partner at Arthur Andersen, warns companies to be ready for such visits by reviewing their record-keeping procedures. In particular, she says, companies should review the audit trail from purchase ledger to tax computations. This is the area where a company’s tax department could be severely embarrassed by a Revenue investigation.
‘Inspectors are flexing their muscles,’ she says flatly. ‘We are finding that more of them are asking for site visits.’
Rick Helsby, a PricewaterhouseCoopers tax partner, agrees the legislative authority to undertake tax investigations will be helpful to the Revenue.
But he questions whether it has sufficient recourse to make its intentions bite. ‘Unless the Revenue is prepared to recruit and train the right people, it will have a problem,’ he says.
Helsby’s comments reflect growing concern over a serious shortage in experienced inspectors – said to be around 200 – in its 2,000-strong ranks of senior inspectors.
Other tax partners say the shortages are localised, however, and that many Revenue offices have recently adopted something of a ‘gung-ho’ attitude.
This change from the gentlemanly approach in the past, they say, is the real danger companies are now facing.
CORPORATE SELF-ASSESSMENT: THE FACTS
– New rules apply to all year-ends after 30 June 1999
– Returns to be filed within one year of accounting period-end
– New quarterly payment scheme applying to all companies with profits exceeding #1.5m, which will dramatically bring forward tax payment dates
– Tough rules requiring companies to demonstrate transfer pricing is done at the same rate as if to a third party; stricter rules on calculating profits of controlled foreign companies
– Increased powers of investigation given to Revenue, which can start enquiry up to a year after filing deadline.
The second largest improvement in ‘significant’ levels of financial distress since the EU Referendum was in professional services, found research from Begbies Traynor
Just one half of UK practices have implemented a pricing structure around auto enrolment implementation and advice - with many suffering increased costs
Deloitte's north-west Europe foray; BDO, Smith & Williamson investment paths; Shelley Stock Hutter; and Wilkins Kennedy discussed by editor Kevin Reed on our Friday Afternoon Live broadcast
Accountants should alter their perspective on auto-enrolment to maximise business opportunities, according to Eric Clapton.