High Volume Agents (HVAs) typically submit high numbers of self assessment returns that result in a repayment of tax.
HM Revenue & Customs (HMRC) has targeted HVAs over the last few years because it believes:
- Most HVAs are not members of professional bodies and are not subject to independent oversight.
- A number of HVAs do not operate to minimum accounting standards and often display a limited knowledge of tax law.
- Inflated repayments are being claimed, with HVAs neglecting to rigorously test the accuracy of the income declared by their clients and failing to apply the ‘wholly and exclusively’ statutory test to determine allowable business expenditure.
73 opening letters were issued to HVAs in 2011/12. 57 of the 73 HVAs have since received follow-up visits from HMRC officers and 17 HVAs have signed Memorandum of Understanding (MOU) agreements (Source: Freedom of Information reply from HMRC-July 2013).
The opening letters issued by HMRC in 2011/12 were generic in style and often followed this format:
Repayment claims – sharing risk concerns
HMRC is now inviting a number of agents to discuss with them, on a one to one basis, the risks that all or part of their client base may present to the Exchequer.
This approach to you has been made on the basis that you submit significant numbers of returns on behalf of your clients that result in a repayment of tax. Additionally, of those returns that HMRC has challenged, a large number have required an adjustment that reduced the original claim for repayment.
This invitation does not constitute any type of formal enquiry or compliance check. The meeting has been requested so that HMRC can better understand the current position from your point of view and to test if the risks identified from compliance checks in the past are still present.
HMRC has already met with a number of agents who submit returns that result in a repayment of tax. On review we have found that many of the returns submitted to be incorrect and our experience has shown that when challenged the returns have included either non allowable expenditure or estimated expenditure which cannot be adequately vouched or rationalised. To address this we requested that they should remind clients of their obligations on record-keeping to ensure returns are based on kept records.
HMRC provides general guidance on record-keeping on our website.
We have worked with agents we have met to improve their processes to give an assurance that the returns they submit are based on maintained records. This includes tests to ensure that expenses have been incurred in the amounts claimed and are allowable for income tax purposes.
HMRC would therefore like to discuss with you the work you carry out in compiling a return that results in a repayment of tax.
If any significant issues are identified as a result of our discussion I would be keen to talk about how the position for your clients can be remedied with the minimum impact to your practice. This would include looking to see how any issues could be resolved without the need for HMRC interventions in each individual case which, as you will appreciate, would be resource intensive for both yourself and HMRC.
Yours sincerely (sic)
During the subsequent visits, HMRC officers reviewed working papers and some clients business records. Despite being reassured that ‘This invitation does not constitute any type of formal enquiry or compliance check’ in the opening letter, HVAs were asked to adopt an amendment programme usually involving adjustments in respect of:
- Cleaning and laundry
- Motoring expenses
- Telephone/mobile costs
- Use of home
The HVAs were also asked to sign an MOU and agree to changes in their approach to handling self assessment returns giving rise to an income tax repayment.
Emboldened by the imminent introduction of the Dishonest Tax Agent legislation, HMRC adopted a more aggressive approach when the High Volume Agent activity for 2012/13 was rolled out.
Author: Guy Smith, Senior Tax Consultant on the ReSource Tax and VAT Consultancy Team.
- HMRC High Volume Agent activity – 2012/13 (abbeytaxblog.co.uk)