When an HMRC enquiry letter is sent, it is unlikely to be random. Statistically, it is exceptionally unlikely. The last available data sets out show there were only 2,763 random enquiries into personal tax returns (2014/15), 362 into corporation tax returns (2015/16) and 925 into employer compliance (2015/16).
The following questions should be asked when an HMRC enquiry letter is received:
- Is the enquiry in time?
- Does the letter open the enquiry correctly?
- Is the letter dated?
- Is the enquiry an aspect or full enquiry?
- Who is the letter from and what position do they hold?
- Has an informal information request been made and are HMRC entitled to that information?
- Why are HMRC requesting certain information?
- Are there areas which HMRC are asking for information that may contain risks?
- Is the time to respond suggested by HMRC reasonable?
- Is a meeting requested?
- Do HMRC wish to visit the business premises?
- Are there associated enquiries?
HMRC have been known to try and open enquiries when they are not permitted. It is likely that they will still find a route to enquire into what they desire. However, that does not allow HMRC freedom to work outside legislation. If there is an issue, it may be that the person has an option to disclose themselves which can often reduce penalties considerably.
The officer making enquiries will be part of a team consisting of different tax specialists. Whilst an enquiry may involve a PAYE issue, it may also create a VAT issue and HMRC will be able to consider both by taking their collective approach. They take this approach even if it appears they are looking at one area of tax.
All too often, a response is provided to an information request without full consideration of what the potential risks or liabilities are. It may be that it takes the mind of someone involved in investigation work to identify what HMRC are looking to challenge. It is always worth seeking a specialist opinion in the event of any HMRC enquiry no matter how small.
Providing information may take longer than that suggested by HMRC. HMRC’s central posting service seems to result in enquiry letters being received ten to twelve days after the date on them. A thirty day window to respond is therefore considerably shorter by the time you receive the enquiry letter, let alone consider in detail. HMRC will normally be agreeable to a longer period although whether the period requested is reasonable will be need to be considered.
Some HMRC enquiry letters may include certain terms such as ‘Technical Officer’, ‘Counter-avoidance’, ‘Fraud Service’, ‘High Net Worth’. Any such references may indicate that the HMRC enquiry letter is being undertaken by a department that has investigated thoroughly before opening the enquiry or a targeting a specific area.
Whenever a meeting or visit to a business premises is suggested, warning bells should be going off. HMRC must commercially justify such visits which indicates that the potential tax recovery makes it worthwhile.