HMRC has numerous powers to check a business’ tax position. This can include VAT assurance visits or enquiries into self assessment tax returns or stamp duty land tax (SDLT) for land transactions. Checks are usually undertaken after a submission of a return but pre-return checks can be undertaken if HMRC believes there is a tax risk, but you need to be prepared to face the tax authority
VAT assurance visits are undertaken through a risk-based system. The more complex and the larger the business, the more likely it is that a business will receive an assurance visit. If a return is late or inaccurate this can also prompt an assurance visit.
HMRC will usually give seven days’ notice of a visit and it will be arranged at a mutually convenient time.
The visit will check the accuracy of the returns made. HMRC will highlight how to improve record keeping, identify inaccuracies and calculate any under declaration, and if a penalty is due. The time limits for assessment is four years, unless there is fraud when it is extended to 20 years.
Self assessment returns
To check a self assessment tax return, HMRC must open an enquiry. There are strict time limits for opening an enquiry, usually 12 months from the date the return is submitted.
After this date, HMRC can only make further enquiries by making a discovery assessment. This can only be made if the potential loss of tax was due to careless or deliberate behaviour and it could not have been reasonably expected, on the information available, that HMRC would be aware of the potential tax loss within the normal enquiry period.
HMRC will obtain documents or further information from the taxpayer by issuing an information notice. This details what information or documents are to be provided, how and when they are to be provided and any appeal rights that are available.
Penalties are imposed for failing to provide the required information.
The time limit for assessment for capital gains tax (CGT), corporation tax and income tax is four years, unless there is careless behaviour when the limit is extended to six years. There is a 20-year limit where there is fraud.
HMRC can also make unannounced compliance visits. The visiting officer will provide a factsheet regarding the visit, their identification, a notice of inspection and a copy of the general information factsheet.
An appeal to a tax tribunal can be made to prevent the inspection, but a penalty will be applied if the appeal is unsuccessful.