Mark McLaughlin offers a selection of practical points for taxpayers facing a tax return enquiry from HMRC.
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When a brown envelope from HM Revenue and Customs (HMRC) lands on a taxpayer’s doormat, it is seldom good news. One of the most worrying communications contains a notice that HMRC is opening an enquiry into the taxpayer’s self-assessment return. Most enquiries are risk-based selections, but some tax returns are chosen at random.
For those taxpayers who are unfortunate enough to be selected for a tax return enquiry, here are some practical points to consider.
Check the small print
Has HMRC opened a valid enquiry? Always check that HMRC has met its statutory obligations in relation to the conduct of the enquiry.
For example, was the enquiry notice given within the statutory time limit? It is not sufficient merely for HMRC’s enquiry notice to be dated within the time limit. This point is particularly important because in some cases HMRC has been too late when opening enquiries.
Make HMRC stick to its own rules
Taxpayers and advisers should ensure that HMRC complies with the HMRC Charter (www.gov.uk/government/publications/hmrc-charter/the-hmrc-charter), which (among other things) features a list of HMRC’s ‘standards’ (i.e., what taxpayers can expect from HMRC). These include ‘making things easy’, ‘treating you fairly’ and ‘be professional and act with integrity’.
Don’t be afraid to make a complaint if HMRC falls below its standards (see www.gov.uk/complain-about-hmrc).
Choose familiar territory
HMRC often request meetings with taxpayers. However, HMRC cannot insist on a meeting with the taxpayer in a normal tax return enquiry. If a meeting might be constructive and the taxpayer agrees, a detailed agenda should be requested from HMRC in advance, to allow adequate preparation and prevent unwelcome surprises on the day.
In addition, the meeting should preferably be held at a venue where the taxpayer will feel relatively comfortable, such as their professional adviser’s offices. Preparation for the meeting is important and is also likely to put otherwise anxious taxpayers more at ease.
Resolving disputes
The taxpayer will naturally want HMRC’s tax return enquiry to close as soon as possible. Unfortunately, disputes with HMRC can sometimes prolong an enquiry. However, requesting ‘alternative dispute resolution’ (ADR) could help to resolve disputes in some cases.
ADR is a mediation process, which broadly allows someone not previously involved in the dispute to act as a neutral third-party mediator, and work with the taxpayer and the HMRC officer dealing with the enquiry. ADR is voluntary, so it is possible to withdraw from the process at any point. Detailed guidance on ADR is available in HMRC’s Alternative Dispute Resolution Guidance Manual (www.gov.uk/hmrc-internal-manuals/alternative-dispute-resolution-guidance).
Seeking closure
Tax return enquiries can become protracted, such as where the taxpayer is self-employed and HMRC’s enquiry has so far been unable to find any significant discrepancies in the accounts. If HMRC’s enquiries are dragging on for too long, consider making a closure notice application to the First-tier Tribunal.
If the application is successful, the tribunal will direct HMRC to issue an enquiry closure notice, unless HMRC can satisfy the tribunal that there are reasonable grounds for not doing so within a specified period.
Practical tip
Taxpayers who are not already professionally represented are likely to find that obtaining specialist advice is money well spent, particularly if fee protection insurance cover has been taken out, such that professional fees are wholly or partly covered.
