Analysis – Looking into the Revenue’s enquiries.

It must be difficult for the Revenue to comprehend the terror felt by many taxpayers on hearing that they are to be the subject of an enquiry into their tax affairs.

The fear is not necessarily due to guilt: it is more akin to being called into the headmaster’s study – there is an instinctive response which consists of racking your brain to work out what on earth it is you might have done wrong. Explaining that many enquiries are carried out on a random basis does not really help – the taxpayer is still left with feelings of dread.

So it is good news that the CIoT and the Revenue have just published a collaborative study looking at the enquiry process and making practical suggestions for how to improve it. It may surprise you to know that not all the grumbles were made by those on the taxpayer’s side of the fence: Revenue staff were keen to contribute, with over 1700 responding to an intranet questionnaire and in many areas there was strong agreement between tax advisers and the Revenue on what the issues are and how to deal with them.

One of the major problems is that the enquiry process, governed by TMA S9A, is very formal. Under self-assessment there is a single enquiry opportunity which means it is often impossible to deal with minor queries without entering into a formal enquiry. The study found that both sides would like the opportunity to use a more informal approach for minor issues, although some caution was shown: the Revenue would not want a taxpayer to be able to ‘wriggle out’ of a later, full enquiry, whereas tax advisers would want to ensure that their clients were not effectively subjected to two sets of enquiries.

There was also a degree of agreement on the question of ‘giving notice’: we have already seen problems, including a trickle of cases to the commissioners in relation to the opening of enquiries; similar issues will arise when it comes to closure notices. The Revenue was keener than tax advisers to see an amendment to ‘date of issue’, but both sides agreed that legislative change is needed to give certainty to taxpayers as well as the Revenue.

On the vexed question of private bank accounts there was less common ground. Over 80% of advisers thought private bank accounts should not be requested as a matter of course in the opening letter, whereas only 30% of Revenue staff agreed. The Revenue took the view that they would need to see the bank statements sooner or later, so why not ask for them at the outset? Practitioners felt this tended to lead the Revenue into a fishing expedition and that bank details should not be requested unless and until there is good cause.

The section on partnership enquiries was quite revealing, if only to demonstrate how cumbersome the process can be for the Revenue – those of us with several hundred partners in our firms might feel reassured that opening an enquiry would be even more hassle for our inspector than it would be for us! Whilst there was little enthusiasm for a return to the principle of joint and several liability, there was a strong feeling that administrative procedures needed to be improved.

So where do we go from here? Overall, I found it encouraging that there was so much agreement between Revenue and advisers, apart from a few troublesome areas. There is a clear feeling that the Revenue is really beginning to think of us as customers. However, much of the terminology may grate at times! Some of the issues can be resolved through procedural changes or via forums (I wanted to write ‘fora’ but my computer spellcheck objected!) such as the ‘Working Together’ initiative.

However, it is clear in some areas, particularly around minor queries and the ‘giving of notice’, legislative change is needed: for once, this is a case where more legislation could lead to a better tax system.

The Revenue’s press release, on 10 November, shows a commitment to taking the findings seriously, with draft clauses promised for comment prior to the Finance Bill 2001. They have also said they are committed to working to develop best practice on various points such as requesting private bank account details, interviews and faster working.

– Heather Self is chairman of CIoT’s technical committee and a partner with Ernst & Young.

Related reading