Is the taxman taking advantage of your clients?
Civil investigations can be an intimidating experience for your clients. The gentlemen (and ladies) from the tax office have an essential job to do, but there is always the lingering suspicion that they might not be averse to being a little liberal with the rules when they do.
After all, inspectors are under pressure to find issues and claw in unpaid tax. But this can result in those tax officials sometimes overstepping the line to meet their objectives.
There are - possibly apocryphal - stories about inspectors that ask carefully-worded questions. One such may be to casually ask how long a contractor has been employed, in the hope the answer can be used to provide evidence that the individual should be regarded as a member of staff and, therefore, within IR35.
There are also suggestions that they will never take the time to set out the limits of their powers during a civil inspection, and so be able to exceed them.
As an accountant you may need to explain the position to your clients, and point out that there are clear limits to the tax inspector's powers when he makes a surprise visit. The inspector will certainly not take the trouble to explain what he can and can’t demand himself.
The powers of the inspectors - during a civil as opposed to a criminal investigation - are laid down in Schedule 36 of the 2008 Finance Act. But there are at least four common myths that the taxman might take advantage of when he pays a visit.
Myth 1. The Inspector can search for documents
During an inspection, an HMRC inspector can ask to be shown any document that is required to be kept under tax law. However, officers are not entitled to go searching around for what they have not been provided access to. Demanding to open filing cabinets, or even looking at papers left on desks are not within their powers.
Myth 2. HMRC can inspect any document it wants
While clients may be required to show inspectors a surprisingly wide variety of documents under the rules, those same rules set clear limits as to what can be requested and what can’t. As one example, asking to inspect documents which are older than six years requires an extra internal HMRC authorisation, evidence of which should be provided.
Tax advice documents and legally privileged documents, provided by yourself or others, are also very strongly protected. Any request to see them should be noted – and refused.
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Myth 3. HMRC can enter your client's premises at any time
HMRC’s civil inspection powers may be extensive, but they do not include forced entry. A taxpayer who refuses to allow entry, or even who asks HMRC to leave part way through an inspection, has to be obeyed - although your client can be certain that the matter will not end there.
Myth 4. HMRC can require a business to cash up
HMRC can inspect assets on the premises which includes cash. However, inspectors have no power to require your client to cease trading and ‘cash up’ during an inspection. Inspectors are obliged to keep disruption to business to a minimum – they certainly can’t ask your clients to turn away customers.
Myth 5. Your client can’t call for help
Clients subject to an inspection may be given the impression that they are at the mercy of inspectors. In fact, they should call you for help immediately.
What help can you give?
If your clients are subject to an inspection, you should advise them to take inspectors into a private room, ensure the inspection notice has been signed by an authorised officer. They should then call you before and request immediate support.
Many inspections result in no further action being taken, and this outcome can be easier to achieve if your clients have taken a businesslike approach to their accounts, are using a modern digital bookkeeping system as required under MTD – and followed your advice.
Of course, sometimes inspectors do find errors, and your clients can find themselves suddenly saddled with an unexpected bill, and little time to pay it.
They may turn to you for advice on the most affordable way to raise the money they need. This can be a challenge – the lending market is complicated, and many types of funding exist. Finding the most appropriate type of funding and the most competitive provider can make a very great difference to the cost.
Fortunately, at Rangewell we can help.
We are experts in business finance. We know all the different types of business funding available, and we know the lenders who can offer the most competitive rates, and those who may be the most appropriate for specialist funding like a Tax Loan. Not only are all our services free for you to call on as an accountant partner, we make no charge to your clients and we may be able to pass commission from lenders on to your practice.
It means that you have another valuable service that you can provide for your clients.
To find out more about working in partnership with Rangewell to find better answers to your clients' funding needs, contact our team today. Our service is free.