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

At last the results of the consultation exercise, False Self Employment in the Construction Industry have been published and we seem to be back to an old style consultation – we ask for your views then when we don’t like the answers we’ll try and ignore them. However, HMRC appear to have left almost all parties unhappy with their initial proposals. Summarised below are details from the consultation:

• Nothing is going to happen yet and nothing will happen until the industry picks itself up, certainly not before the Olympics in 2012. So be prepared for employer compliance reviews, tax investigations and employment status reviews to continue

• The simplistic approach of the government having three tests has been widely criticised and they have conceded that further consultation will be required

• There is also a lot of criticism that any simplistic approach away from case law is only being geared at the Construction Industry, what about other industry sectors?

• The government have indicated that they will look into organisations purporting to get round the rules such as umbrella companies, managed service companies and labour style agencies, which is no bad thing as they are so blatantly flouting the rules and taunting HMRC (never a good idea for them or more importantly their clients)

• Interestingly, the Trade Unions aren’t happy as they could potentially see a lot of new members but the government proposals actually mean that although subcontractors would suffer PAYE/NIC they would not be regarded as “employees” but “deemed employees” which means that they would have no employment rights or benefits. This has been widely criticised because it would actually create “false employment” and the employment law side of this has not really been addressed

• There is a General Election due, probably around 6^th May, which could mean a different party in power. The Conservatives have not indicated that they will pursue what is effectively a witch hunt in the Construction Industry

So we’re back to watch this space but be aware that HMRC are out there looking at your self employed arrangements

Well it’s official, you can’t rely on HMRC’s literature – which is what this employment tax expert has been saying for years, so watch out when it comes to employer compliance reviews, tax investigations etc

The problem you have is that the general public quite rightly would expect that any guidance provided by the Inland Revenue is correct – whoops, time for a harsh reality check, HMRC guidance is their INTERPRETATION of the law and that’s as far as it goes, a fact that Parnalls solicitors fell foul of when they relied on this guidance in a recent Tribunal case:

In a concluding statement the Tribunal judge, Roger Berner stated:

“Mr Harvey referred us to a number of extracts from HMRC publications and other materials in support of an argument that HMRC were guilty of inconsistency in arguing the case against the Appellant. We do not consider that these were material to our decision, which depends on the law as we have found it and not on any interpretation which might be attributed to HMRC. We do not therefore refer to such materials in our decision, and we make no comment on their validity or otherwise.”