HMRC Issues Update On Compliance Check Changes

by Robert Lee, Tax-News.com, London

12 February 2009

The UK tax authority, HM Revenue and Customs, has reminded taxpayers that significant changes to the way it carries out compliance checks on businesses and individuals will come into force from April 1, 2009.

According to HMRC, the new measures, which are provided by Schedules 36, 37 and 39 of the Finance Act 2008, will make the tax system "simpler and more consistent." The changes will affect how HMRC manages compliance checks for several taxes, including income tax, capital gains tax, VAT, PAYE (pay-as-you-earn), the Construction Industry Scheme, and corporation tax.

Under the new laws, from April 1, 2009, HMRC will have one set of powers covering these taxes to visit businesses, inspect premises, assets and records and ask taxpayers and third parties for more information and documents.

The new legislation is said to provide greater flexibility in setting record-keeping requirements after April 1 and new time limits for assessment and claims, which will not be fully in force until April 2010 (with transitional arrangements from April 1, 2009). Important safeguards for taxpayers are also included in the changes.

In addition to a single set of powers to inspect business records, assets and premises, the new legislation provides HMRC with:

• the ability to see statutory business records without a right of appeal;
• the ability to look at records for PAYE, income tax, the Construction Industry Scheme, capital gains tax and corporation tax during the tax year before a return has been submitted;
• a new power to correct obvious errors in a tax return based on information held by HMRC; and
• a single approach across all taxes to asking taxpayers and third parties for supplementary information, based on formal information notices with a right of appeal.

The legislation also makes some changes to the way HMRC must carry out compliance checks, including:

• a new four-year time limit for assessments and claims - a reduction from six years for income tax, capital gains tax and corporation tax and an increase from three years for VAT;
• reductions in extended assessment time limits;
• a streamlined process for closing corporation tax assessments;
• a new statutory ban on inspecting purely private dwellings without consent;
• a statutory requirement for HMRC to give at least seven days prior notice of a visit, unless either an unannounced visit is necessary, or a shorter period is agreed;
• a new requirement that unannounced visits must be approved beforehand by a specially trained HMRC officer; and
• a statutory requirement on HMRC to act reasonably.

Recommended