Employment Tax Expert

Tax investigations are taking a new, slightly sinister twist – HMRC are allegedly demanding personal financial records from business people, without proper grounds for suspicion.

This comes about at a time when Section CH223430 of HMRC’s Tax Investigation handbook appears to have “disappeared. Now I know you’ll be asking what the hell is this reference all about, well it tells inspectors that they need to find something significantly wrong, questionable or suspicious in a business’s record (ie they need to ‘break’ the record) before they can demand personal financial details from an owner or director of that business.

A number of people have noticed that this has become worryingly commonplace, Anne Eager, enquiries manager at RJP, stated:

“I have had requests for private bank records from my clients in opening letters. When I challenged the request, the inspector said that it was to save time, as he felt it was very likely there would be issues with the records.

He added it was a ‘standard approach’ under the new regime.”

In other words HMRC are indulging themselves in fishing trips into people’s private bank records. Once HMRC have access to those records every payment into the account would be under suspicion, and it would be for the taxpayer to prove that the payments in do not constitute taxable income. Innocent until proven guilty – not in the tax world!

and what you may ask has happened to Section CH223430 will return , HMRC claim it will return but why was it removed/dropped in the first place?

Anyone who has a debt with HMRC, whether it be from a Tax Investigation, employer compliance review, employment status review, PAYE/NIC/CIS or Self Assessment you need to take heed of what is happening regarding HMRC debt collection agents.

To begin with, those out in the field are now not allowed to contact HMRC offices to validate the debts that they are being asked to collect. Why you may ask, well there are two very different reasons:
1.The support teams back at base do not have the time to take phone calls – this is the official explanation; or 2. That HMRC is preparing the ground for this work to be given to private debt collection agencies (The Budget announced that a further £500m of debt will be handed over to private agencies). These private agencies, will obviously not be able to phone up HMRC offices and ask for details from confidential records.

HMRC have conducted a bizarre pilot scheme to test whether going down the route of private debt collection agencies would work. Think really bizarre and then carry on reading …

The agencies were given a tranche of work to do, and a control tranche was left with HMRC teams (but was left completely untouched).

and the result, that’s right, the debt collection agencies won!

Fast forward to reality and it will be no surprise that over half of the debts that HMRC debt collectors are given to chase up are in fact incorrect but rather than the onus being on HMRC to prove the debt, these collectors are told that if they are challenged by a “customer” the onus is on the “customer” to prove that HMRC are wrong, which is morally wrong and goes against our judicial system of innocent until proven guilty. So imagine what it’s going to be like with private agencies

An investigation of what you may ask yourself but it’s all very circular as you will see and unfortunately it comes back to the fact that more companies will be subject to employer compliance visits, tax investigations to raise funds to feed our national debt.

But am I the only person who wonders who exactly we are in debt too – as we’re in trouble, Greece is up the creek without a paddle (except for the Euro zone bailout and who has funded this), and then we see that Portugal and Spain are heading in the same direction – so if someone could enlighten me as to who precisely is the ultimate loan shark in all of this I would be very interested.

So to feed the national debt we are being told to prepare for tax rises and spending cuts and this is where HMRC play their part, so be warned every last penny will be squeezed out of the unprepared or ill prepared company and individual – butchers, bakers and candle stick makers or should that be health professionals, lawyers and gas fitters

HMRC have gradually been introducing various penalty changes and “in year” late payment penalties are something new for this tax year but there has been very little publicity about this latest addition to the employer compliance review/tax investigation/Construction Industry Scheme review regime.

So what does this actually mean from both a PAYE/NIC compliance and CIS compliance perspective – well, it means there are no opportunities to hold onto monthly PAYE and CIS payments to HMRC to aide cashflow and then catch up at the year end. Now paying late will register a default and these defaults will be tracked throughout the year and then only after the end of the tax year will penalty notices be issued – because let’s face it this is when HMRC can obtain the highest yield from you. It has already been confirmed that they won’t issue the notices “in year” so don’t think that you have got away with it because it will be stored up for the end of the tax year and then bang, the penalty notices will arrive.

Statistically HMRC will be looking for unusual remittance patterns so don’t go down the misguided route of thinking “how will they find out?” because you’ll be walking into the next stage of the the new compliance regime that of “real time record reviews”. Keep reading for further updates on this very important development …

With the whole question of honesty, fairness and paying the right amount of tax at the forefront of HMRC’s compliance and investigation drive, it is interesting to note that HMRC have fallen foul of the Treasury Select Committee. They have come out and questioned excerpts from HMRC’s Annual Report and quite rightly too. These reports should be factually correct but as the next few paragraphs show it’s no wonder HMRC is in such trouble, its conning itself and trying to do the same to the rest of us

4 54. In its Annual Report 2009, HMRC claims[88] that it is hitting its target to improve customers’ experience, and that “results indicate that customer satisfaction exceeds our target levels.”[89] We find it hard to reconcile these claims with its customer complaint levels and call response rates. Whilst we accept that these are not the whole picture, we urge HMRC to reflect on whether customer experiences of HMRC are yet improving as much as the DSO2 “strong progress” summary implies.

Against this background, we were surprised to see HMRC declare in its Annual Report that “HMRC has been hailed as a shining example of how to use technology to take government services to a new level.”[109] Lesley Strathie, however, remained bullish about HMRC’s IT progress, including a new agreement with its suppliers under the Aspire contract “which will significantly reduce cost for department over the coming years.”[110]

Unbelievable levels of arrogance will not improve service levels – that is a fact!