An officer from HM Revenue & Customs (HMRC) can enquire into a tax return by giving written notice to the individual, sole trader, partnership or company concerned.
The notice will:
- state that HMRC intends to start an enquiry
- explain which tax return or accounting period has been selected for enquiry
- highlight the date the tax return was originally received
- confirm the tax legislation under which the enquiry has started
- say which areas are being checked
- list what information and documents are required and then
- contain a time deadline by which the information and documents must be submitted to HMRC or made available to an officer at a meeting
A factsheet called ‘CC/FS1a – General Information about compliance checks’ is usually enclosed with the letter. A copy of the factsheet can be viewed here http://abytx.co/19ipbnd
If the officer has requested a meeting and wants to view the information and documents requested on site, another factsheet is often issued as well. It is called ‘CC/FS3 – Visits – by agreement or with advance notice’. A copy of the factsheet can be viewed here http://abytx.co/JfHYWJ
The officer is not required to state the reason(s) why the return or accounting period has been chosen for enquiry but clues will be in the letter, especially where the officer states which areas are being checked.
Unfortunately, generic terms are usually listed such as ‘Sales’, ‘Purchases’ or even ‘Business Results’, which do not provide any greater insight into what the officer’s concerns are. The vast majority of enquiries are launched after a risk assessment of the return and accounts has been undertaken, although some random enquiries also take place.
Under the Single Compliance Process, HMRC officers are supposed to conduct enquiries in a more transparent manner and explain the risk areas more fully, both to encourage collaboration from the individual or business under enquiry and to ensure the enquiry moves forward quickly. In practice, the application of the Single Compliance Process is very inconsistent. Some officers will be upfront and forthcoming, whereas some of their colleagues still prefer to indulge in ‘cat and mouse’ enquiry style techniques.
Tax legislation and time limits
Individuals and Sole Traders – Enquiries are launched under Section 9A TMA 1970 within 12 months of the return being delivered to HMRC.
Partnerships – Enquiries are launched under Section 12AC TMA 1970 within 12 months of the return being delivered to HMRC.
A notice of enquiry into a partnership return is treated as including a notice of enquiry into each of the members of that partnership. The legislation allows HMRC to make any adjustments to the self assessments of the partners as a consequence of the enquiry into the partnership.
However, the non-partnership aspects of a partner’s tax return can only be reviewed if a separate enquiry is opened under Section 9A TMA 1970.
Companies – Enquiries into the majority of company returns and amendments are launched under Paragraph 24(1) Schedule 18 FA 1998 within 12 months of the Company Tax Return being delivered to HMRC.
Different rules apply to a company that is a member of a group that is not ‘small’. The enquiry window for such companies still closes 12 months from the statutory filing date.
If a return from an individual, sole trader, partnership or company is late and delivered after the statutory filing date, the enquiry window closes on 31 January, 30 April, 31 July or 31 October next following the first anniversary of the day on which the return is delivered.
Author: Guy Smith, Senior Tax Consultant on the ReSource Tax and VAT Consultancy Team.
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