There has been a definite shift in how HMRC carry out employer compliance enquiries, moving from face to face site visits to desk-based enquiries. This may be down to HMRC centralising in their move to regional Centres, an attempt to save money on travel and subsistence or a combination of both. Nevertheless, this certainly does not mean that HMRC are more trusting than ever and this new approach adopted by HMRC should be treated with the same importance and caution as one would an Inspector arriving at the business premises.
In line with the modern-day, HMRC has digitised a lot of the information they obtain, making it easier for them to combine data sources and review and subsequently identify potential shortfalls in taxes and National Insurance, or PAYE reporting failures. This allows HMRC enquiries to be more specific and focused on specific aspects of the business.
Understandably, a questionnaire filled in and returned to HMRC does not command the same authority that a face to face meeting would have. However, it is worth noting that this questionnaire is equally as important. In filling out the questionnaire without professional assistance, you leave the business liable to self-incrimination, making HMRC aware of potential shortfalls out with the scope of their original enquiry. Additionally, you will be providing HMRC with written evidence making it harder to prove otherwise as the enquiry progresses, even if it what has been written has been misconstrued. These questionnaires can also be used as evidence at a tribunal if you seek to appeal HMRC’s decision, strengthening HMRC’s argument.
As a result of these questionnaires, there have also been instances where other taxes (e.g. VAT and Corporation Tax) enquiries have been opened by HMRC on the back of the information provided through the employer taxes review. Therefore, if you receive a letter from HMRC regarding any enquiry, it is imperative that you seek professional assistance to minimise or mitigate any tax liability that may otherwise arise. Whilst the responses must always be honest, the business needs to ensure it is framing the responses in a positive light and shutting down questions rather than allowing things to be dragged out.
This new approach by HMRC can also prolong enquiries as questions that could have been answered simply in a face to face meeting now require months of correspondence. As a result, the ongoing cost of an enquiry can be significantly more than in previous years. In this regard we can provide tax fee protection insurance, providing you with peace of mind that professional fees incurred during an HMRC enquiry will be covered by the policy.
If you wish to take out tax fee protection insurance or have received a HMRC enquiry letter, please do not hesitate to get in touch with your usual AAB contact or Charlotte Edwards.
By Charlotte Edwards, Payroll & Employment Taxes Senior Manager at Anderson Anderson & Brown LLP
To find out more about Charlotte and the Payroll & Employment Taxes Team, click here.