Her Majesty’s Revenue & Customs is looking to change both its civil and criminal powers, as it continues to take a more bullish approach to dealing with individuals and businesses, says business and financial advisers Grant Thornton.
Charlie Hall, investigations partner at Grant Thornton, says: “Recent high profile arrests and attempts to extend HMRC powers have highlighted that the Revenue of today is very different, in both powers and attitude, than even a few years ago.”
HMRC has announced its intention to seek much tougher powers to arrest and bail taxpayers, search them and their premises and even fingerprint them where they suspect tax evasion.
These powers bring into line some of the old powers of the Inland Revenue and HM Customs & Excise but also go far beyond them.
These new powers are the latest in a series of changes, which has the old Inland Revenue arm look to gain the same powers as Customs.
For example, before the merger, Customs had the power to enter business premise unannounced at any reasonable time, whereas the Inland Revenue had to book an appointment.
Hall adds: “HMRC is leaner and meaner than its two separate entity predecessors.
Many of its staff are from the old Customs where they often dealt with criminals, requiring a hard stance and extensive powers.
The concern is that a more aggressive approach will lead to a breakdown in relations with the business community.
The shift is fuelled by a belief that the investigation practices of the former Inland Revenue was too lenient.”
The new proposals also seek to include a new criminal offence of providing materially incorrect information in the course of a Civil Investigation of Fraud Enquiry.
Following the merger with Customs, for the first time, an inspector of taxes has access to company’s current records, allowing them to make judgements about current tax compliance without waiting for accounts to be completed or returns submitted.
Not only that but there are also new arrangements where taxpayers are “invited” to allow access to their current income tax records on a voluntary basis.
This is as part of a trial of interventions by HMRC which are intended to be less formal than the normal enquiry process.
Heather Taylor, senior tax manager at Grant Thornton, says: “The concern is that although these new interventions have the laudable intention of reducing the time taken to carry out an enquiry, the taxpayer will not have the protection of a formal enquiry, e.g. the right to ask for a closure notice.
“Nor does taking part in an intervention bring finality for the taxpayer, as it does not remove HMRCs power to start formal compliance procedures at a later stage.
HMRC says that if taxpayers choose not to volunteer their current records they will not automatically be subject to a self assessment enquiry or VAT/PAYE compliance review.
However, the risk which HMRC has identified during the intervention review will still exist, and it might decide to follow it up formally at a later stage.”
The new intervention spectrum will range from initial telephone calls to correct or query minor issues, to reviews of business records to check that everything is operating correctly, and even to full blown investigations where HMRC suspects wrongdoing.
This is the most obvious example of the Revenue arm of HMRC changing its approach, reflecting the structure and attitude of Customs.
Other examples include no facility for taxpayers to call in for face-to-face discussions about their tax position in some area offices, unless these meetings are prearranged.
No facility to speak on the telephone to a local tax office, with all contact funnelled through a general call centre. (In contrast HMRC will phone the taxpayer direct if they have minor queries).
Rumours of telephone queries from taxpayers to call centres being allocated maximum time slots for each call.
No facility to drop in letters or documents for HMRC and get a receipt while you wait. This is a particular problem where correspondence is date sensitive.
Increasing examples of less co-operation with those businesses/directors who have had past problems or paid tax late (for example, a refusal to grant sub-contractor certificates to those whose tax paying history is not perfect).
Setting up the Large Business Service, in which big organisations are given a risk assessment, with those considered high risk likely to be the subject of a formal investigation.
The Department of Constitutional Affairs as part of an on-going consultation is considering whether that the existing VAT Tribunals and the General Commissioners for Income Tax should be abolished from 2007, and replaced by a joint tribunal, with a first stage ‘paper sift’ replacing the right to a personal hearing for the taxpayer.