In this episode we will taking a deep dive into HM Revenue & Customs. HMRC is a Government body responsible for the collection of taxes. You may have heard of it but do you know where to find guidance? What powers do they have? Should you provide the information in its letters?  Specifically this episode will cover HMRC’s guidance, powers, and how legislation is implemented.

Natasha  00:38

Hello and welcome to Taxable. Today’s episode is HMRC The Elusive Beast, and we will be discussing about how tax legislation is created, how it’s policed and HMRC’s powers. As a side note, please make sure you click subscribe. So you’re notified about new episodes.

HMRC, we’ve all heard of them. The Big Bad Wolf. I like to think of HMRC as being teachers of the tax world. They provide us with guidance and every now and then they throw in an annoying pop quiz, but they call it an enquiry.

Natasha 01:08

But before we look at them in more detail, let’s first take a step back and have a look at how tax law is implemented. Legislation is set by Parliament and each tax has its own statute. This means that each tax has its own set of rules.

Natasha 01:23

Changes are announced in an annual budget by the Chancellor and that’s currently Rishi Sunak. HMRC is responsible for the collection of taxes in England only as Revenue Scotland and the Welsh Revenue Authority rule over their own jurisdictions.

Natasha 01:37

Here’s a fun fact for you. Did you know that HMRC’s guidance isonly its interpretation of the law? So this does not mean it’s necessarily correct or legally binding. Taxpayers and advisers may have a different interpretation, and if this happens, the courts step in.

Natasha 01:52

So let’s take a look at the courts in more detail. First of all, we have the First Tier Tribunal (FTT), but the decisions of this court do not create binding legal precedents. However, they can be very influential and are often cited by HMRC and taxpayers in their arguments. If you believe there’s been a legal mistake in the findings of the FTT, you can appear to the Upper Tier Tribunal. Now, the UTT does set legal precedents and you’re probably wondering, what does that term mean?

This means that the findings are followed in law in the future by the court, HMRC and taxpayers you can look to potentially go to the Court of Appeal and the Supreme Court.

Natasha 02:29

However, going to court is extremely expensive and you will require representation. So the more courts you go to, the more expensive it will be. So do not take going to court lightly.

Natasha 02:40

Another fun fact for you. Did you know that HMRC’s guidance is not always correct And this is because they do not update it quickly for case judgment, especially if those judgments are not in their favour. This is why we only use it as a guide for HMRC’s view on a topic rather than the word of the law.

Natasha 02:55

As mentioned, HMRC does provide a lot guidance and this is usually on the website and is provided on information sheets or guides. VAT is an extremely complicated tax, so it has separate notices called VAT notices. We also have HMRC’s internal manuals and these are prepared for HMRC’s offices, so it gives an insight into how they view or argue a topic. Essentially they give you the inside scoop. But where else can you look? You can Google a subject, look at online publications or you can look at your advisor’s website. I highly recommend looking at Hiller Hopkins website as we’ve taken a lot of time and effort by guidance.

Natasha 03:37

So what powers the HMRC have? So they’re allowed to look into a person’s tax position? And if HMRC wants to check something in a return, it will open an enquiry. An enquiry is a formal statutory procedure with fixed time limits. In the past you always received a dreaded Brown envelope, but as the times have changed, especially with working from home you may now receive an email.

Natasha 04:01

Please do be aware that some letters HMRC provide are only general and they may be a fishing exercise, and by that I mean they’re looking for you to make voluntary disclosures. I tend to find that taxpayers panic when they receive a letter as they instantly think that they’ve done something wrong and this is not always the case.

Natasha 04:19

So what’s the process if you do get an enquiry? Well, first of all, and the most important step is to make sure your notice is valid. And by this I mean make sure you check the details are correct. So you need to check things like the name, address and references.

This may be your unique taxpayer reference number, the company number, or the national insurance number. If any of these details are incorrect, then the notice is not valid and you must write to HMRC and let them know that they need to issue another notice. This can be very useful if HMRC are towards the end of the time limit to raise an enquiry, so make sure this step is always followed.

Natasha 04:57

Next, what happens is you’ll either have a desktop or an in person review. HMRC will ask questions and information will be provided. An enquiry finishes when HMRC issues a closure notice and you have a statutory right to challenge HMRC.

If you disagree with their decision you can request for someone to undertake a statutory review and this is meant to be an impartial and specially trained officer at HMRC. However, it’s one HMRC officer reviewing a colleague’s work, so as you can imagine, they usually tend to agree with their co-workers.

Natasha 05:31

An alternative option is to use something called Alternative Dispute Resolution. You may have heard it as ADR. This is where you and HMRC sit down and try to resolve your differences before going to court. If you get an enquiry, you have the option to handle this yourself, or you can appoint an agent to talk to HMRC on your behalf. If you have an adviser, you should let them know as soon as you hear from HMRC.

Natasha 05:55

In theory, they should have received a copy of any inquiry that HMRC tend to use second class post, so sometimes it can take a while to reach us. But whatever the letter says, do not contact HMRC without speaking to your adviser.

Natasha 06:08

Enquiries can be costly, so you should look into opting for tax investigation insurance. This, this is an arrangement where your tax advisor buys the insurance, but you pay for, it to cover them for the cost of their fees. This means if you get an enquiry, you do not need to worry as the insurer picks up the bill and lots of firms offer this as it give taxpayers a peace of mind.

Natasha 06:32

HMRC say they inquire into one in ten tax returns each year so you will receive one eventually. As you can imagine, there are different types of enquiries and we’re only going to look at them very briefly.

Natasha 06:43

You have your standard enquiry and HMRC does not need to give a reason. This enquiry can be about anything in your return or what should have been in the return, including any claims or elections. The next type of enquiry we have is called a discovery assessment. The rules about discovery assessments are very complicated, but essentially the normal four year period is extended to six years where a taxpayer has been careless or 20 years of you being dishonest.

Natasha 07:12

So what powers do HMRC have under the enquiry? Well, like we said before, most enquiries are performed by desktop, but every now and then HMRC may opt to visit business premises, but please do remember they cannot force entry. You are allowed to turn them away if an in person visit does take place. Please also be aware that any paperwork which is out can be looked at.

Natasha 07:35

If you do refuse entry or you don’t want to visit taking place at your business premises, you can ask for it to take place at your advisor’s office. Another fun fact for you. Did you know that everything you say during a visit is recorded? So it’s always best to have an advisor with you.

Natasha 07:50

HMRC will make notes, so make sure to request to review any minutes as you will want to read them back to make sure that they have not misunderstood anything that you meant or a question.

Natasha 08:00

So I mentioned before about making sure an enquiry is valid. Another thing to look at is your enquiry window. Now each tax has differing limits. For example, Income Tax and Corporation tax notice must be given within twelve months from the date the return is filed, but stand duty land tax has a shorter window as it’s only nine months from the reporting deadline, and that’s 14 days from completion of the house or nine months from an amendment date.

Natasha 08:27

But like I said, you’re not expected to be a tax expert and remember all of this information. This is why you have a tax advisor and we do the heavy lifting for you.

Natasha 08:38

If you’re going to take anything away from this episode, please just remember that HMRC officers aren’t scary and they’re just ordinary people doing their job.

We may not always like them as they are the traffic wardens of the tax world, but they are here to stay and do not panic when you get an enquiry.

Natasha 08:56

To give you a heads up on next week’s episode, it’s called it’s my money I’ll spend if I want to, and it’s all about withdrawing money from your company.

If you are self employed or part of a partnership, this episode may not be relevant to you, but if you are thinking of incorporating and by that, I mean, if you are thinking of changing or turning your self employed business or partnership into a company, then it may be relevant.

Natasha 09:22

But thank you everyone for listening and I’ll see you next week.

*This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Please visit my disclaimers page for more information. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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