HMRC is about to start a pilot "exploring" the way that its new breed of tax compliance check will work. These cross-tax compliance checks might get a few tax agents hot under the collar too.
HMRC is kicking off by selecting 50 cases in the South West for its pilot. Using cross-tax compliance checks HMRC will come and examine the books and records of the business in order to check, company tax, VAT and PAYE in one fell swoop. This might be traumatic for business owners, but most tax advisers recognise that this represents a sensible use of resources for HMRC.
There are several issues here which may affect the adviser-client relationship. Most worrying is that many agents will find that HMRC will not automatically inform them about the prospective visit.
The check will commence with a phone call from HMRC, made directly to the taxpayer, and then followed by a letter (see example below) which will give a list of accounting records that the taxpayer should have ready for HMRC as well as enclosing copies of relevant leaflets about the visit.
The initial problem with this process lies with form 64-8 (notification of tax agent authority). Due to issues of client confidentiality HMRC will not notify a tax agent that their client has been selected for a compliance check unless a 64-8 is already in place and covers all the relevant taxes. Therefore, if you have only a 64-8 in place for say, company tax, and not for either VAT or PAYE, or both, you will not be contacted by HMRC concerning a cross-tax check.
HMRC’s solution is to send out a 64-8 with the letter to the taxpayer, who is then supposed to complete it for the taxes not covered by its agent, and this way the agent will be kept in the loop. There is a problem with this strategy which is that many agents do not want to be agents for taxes such as PAYE, if they are not running the payroll because they will then start to receive PAYE coding notices.
It is not clear how HMRC is going to get around the confidentiality issue when it makes its initial phone call to the company. The 64-8 problem may well be a stumbling block as many company directors may not be able to give HMRC perhaps all the information it needs during the initial phone conversion, particularly where a company’s bookkeeping and payroll are outsourced and most do not prepare their own company tax returns. A combination of people may be acting on behalf of the company and it is highly unlikely that they will have been authorised by 64-8 on an individual basis.
As indicated by the example letter, HMRC intends to check the records of previous years. No one is actually sure where we are in terms of the concept of discovery which is a major worry for advisers. The new tax penalty regime applies to returns filed after 1 April 2009 and so a visit to check the return of an earlier period (as per the example letter) will be under the old tax penalty regime.
This is a minefield for most tax agents, and it is safe to guess that most taxpayers will be completely baffled. Obviously at www.rossmartin.co.uk we will be covering this in our own unique way, and trying to find real answers some of the unanswered questions that worry us in the next few months.
Finally, if you have read this far, top marks for effort! Make sure you sign up for your local Working Together (working with HMRC). If you are a member of a professional body it will or, should have, a rep in your area who you can contact. If not contact us and we will send you phone numbers.
Example of Cross-tax pilot letter:
Local Compliance, Change & Capability
Mr A Black
The Company Secretary
Colour Printers Ltd
Dear Mr Black
Check of Company Return and business records - confirmation of visit
Company name: Colour Printers Ltd
Visiting officers: Jayne Browne and Simon Green
Date of visit: Thursday 19 November 2009
Time of visit: 10 am
Place of visit:
Period covered by review: 6 April 2007 to 5 April 2008
Thank you for your time on the phone earlier today. As we discussed, my colleague and I will visit you to carry out a sample check of your business records. Our checks will cover:
- Corporation Tax
- PAYE (Pay As You Earn)
If you need to change the date or time of the appointment please contact me as soon as possible on the above number.
The Company Tax Return
Some of the business records that we will check will also relate to the Company Tax Return. So, we will need to check the company return for the accounting period ended 31 March 2008. This part of the check will be carried out under Paragraph 24 (1), Schedule 18 of the Finance Act 1998.
What we will be checking
We will be checking that the returns you sent us for the above period are complete and accurate. This check will help to highlight any risks that may cause the company to pay the wrong amount of tax or National Insurance. It will also be an opportunity for you to ask for any help or advice that you may need.
What you need to do before the visit
I have enclosed a schedule showing the records that I would like to see at the visit. If some of the records are stored elsewhere and it will be difficult for you to get them by the date of the visit please let me know. I may be able to look at them another time.
If your records are held on a computer, please make sure that there is someone available to access them during the visit.
If any other issues come up during the visit I may ask to see other records. If this is necessary we can agree workable timescales for you to provide this additional information.
About the visit
At the start of the visit, we will need to talk to you so that we understand how the company works and how your records and accounts are kept. We may also need to speak to the person responsible for your record keeping if that is not you. We will carry out a sample check of some or all of the items shown on the enclosed schedule.
At the end of the visit, we will discuss any findings with you and answer any questions you may have.
The length of the visit
For a small business the visit may take a few hours. For a large or complex business it could take two or more days. We try to carry out all visits as quickly and efficiently as possible. You can help us to do this by making sure that all of the records we have asked for are available and that there is someone there to help us understand them, especially if there is anything unusual about your business.
I have not sent a copy of this letter to your advisers, Reddy & Co. This is because we only have authority to send them copies of letters about your Corporation Tax.
If you want us to be able to discuss this check with your advisers, you will need to complete the enclosed form 64-8. You can use this form to tell us which tax matters you want your advisers to deal with.
You can ask your advisers to be present at our visit.
More information about the check
I enclose copies of factsheets CC/FS1 General Information and CC/FS3 Visits pre-arranged which provide more information about this type of check. If you have any questions once you have read these, please contact me on the above number. If you prefer, you can write to me at the address at the top of this letter.