| November 2006
Introduction
An enquiry by HM Revenue & Customs (HMRC) is not exactly a welcome
prospect for taxpayers. A meeting with HMRC officials will often be an
even less attractive proposition! Such meetings can be a frightening or
daunting prospect for many, regardless of whether the taxpayer is guilty
of any wrongdoing in respect of their tax affairs.
Q:
My company is currently under investigation from HMRC for 2004/05. I
have given them all information they have asked for but they say they
need to interview me to understand how my company operates.
My accountant declined the offer at first, saying I was a busy man and
we could answer any questions in writing. My accountant didn't fill me
with confidence so I sought independent advice from a local consultant.
His advice was to refuse to the interview at all costs. Then we received
a second letter asking again for the interview, which we again declined.
We have just received a third letter, and my accountant wants me to talk
to them because in his experience this prevents any deeper investigation
and a deal can be done.
However, I’m worried that I will say something by mistake. The
issue is with employment status of sub-contractors. Should I hold out
or speak with them?
A:
Editor's Comments
The beginning of the query indicates that the ‘investigation’
is a company enquiry under corporation tax self-assessment (CTSA), but
later states that the issue concerns employment status, which is normally
considered as part of an employer compliance review. We will assume that
this is a CTSA enquiry, and possibly cover employer compliance reviews
in a future Tax Clinic.
The first point to emphasise is that there is generally no requirement
for taxpayers to attend meetings with HMRC, except for the more serious
investigation cases. As the query indicates, there are conflicting views
among professional advisers as to whether taxpayers should attend meetings
with HMRC officials. A meeting can often help to resolve enquiries more
quickly than by correspondence. Attendance at meetings is normally also
regarded as good co-operation, which can result in lower penalties being
charged at the conclusion of the enquiry, if any ‘culpable’
tax is payable. However, some taxpayers are naturally very nervous and
apprehensive about attending such meetings, and will avoid them if at
all possible.
If a meeting is agreed, the taxpayer should be represented by an adviser
experienced in enquiry work. In addition, the HMRC official should be
asked to provide a detailed agenda in advance of the meeting, to enable
the adviser and his client to prepare, and to ensure that discussions
do not deviate from the subject matter of the enquiry (i.e. ‘fishing
expeditions’ by the HMRC official, as some advisers may call it!).
The above and additional points are covered by the respondents below.
Responses from contributors included:
Bob Jones
Being ex Revenue my advice would always be to attend the interview and
cooperate. Has it been explained to you that if there is tax owing at
the end of the day and if this can be attributed to your neglect there
could be a penalty in addition to the tax and the interest. The starting
point of the penalty is 100% of the tax but that is reduced - usually
considerably reduced - for three reasons one of which is cooperation.
None co-operation therefore can have a detrimental affect on the final
tax bill. You refer to "..a deal can be done.." so it sounds
as though a penalty situation could apply in this case.I am a liitle concerned
by your statement "..I am worried I will say something by mistake..."
- my advice would always tell the truth. If in addition to being un cooperative
you are found to be giving eg false information this increases the seriousness
of the case and/or has an effect on the disclosure aspect - both of which
have a direct bearing on the amount of the penalty. If the "other
side" refuse the interview HMRC will think that they have something
to hide... I think you should speak to them .....
wamstax
As ex-revenue like Bob I would always encourage you to tell the truth.
The truth always tells twice whereas lies trip you up when you are trying
to second guess what the HMRC is after. However while I can go along with
Bob about attending meetings I would also say that you don't go to a meeting
if you are not prepared for it. The HMRC will usually have prepared a
detailed brief ready to tackle your problem from every possible angle
and to go in ill prepared is worse than not going in at all. I would however
point out that in any Company Enquiry you are not obliged to attend any
meeting (see page 8 of COP14 Booklet) but if you decide to attend you
are very much at liberty to ask for an agenda of all the subjects to be
discussed and nature of the questions to be asked. You might find the
following link useful in preparing for any meeting http://www.hmrc.gov.uk/employers/tmaemployed_or_self-employed.shtml
AND http://www.hmrc.gov.uk/pdfs/ir56.htm
if you decide to take the HMRC up on their invitation to attend a meeting
(that is all it is as they cannot treat non-attendance as a lack of cooperation
unless it is in the serious enquiries area carried out by CIF etc teams.
Possibly the links will arm your accountant a bit better for representing
you but I would never recommend going into a meeting with someone you
don't have confidence in protecting your company's interests.
wamstax
Another good source of information to get you as armed as possible to
attend any meeting could be http://www.hmrc.gov.uk/leaflets/c7.htm
and go for IR148 or IR56 booklets. It would also be best to ensure that
you know who is conducting the enquiry - for example status of subcontractors
would invariably be employer compliance units however should they find
that something is wrong in that area then they may well refer the matter
to the Company Inspector. Alternatively the Company Inspector may well
be already involved and should this be the case then of course you have
to consider that the enquiry may be more wide ranging than you first thought.
An agenda of topics and nature of enquiries would give a good key as to
how far reaching questioning would be and enable you to consult an investigation
specialist to ensure that you know what you are getting into...
Lawrence McAulay 01
If you are confident that you are well prepared, well represented and
in a position to gain an advantage from the meeting, then agree to one
by all means.
Otherwise, refuse. Do it politely, explaining that you are in a far better
positon to provide comprehensive and considered replies to questions in
a letter than in a meeting. Always make sure you respond promptly, openly
and politely and you should win all the 'cooperation' brownie points.
I have attended several meetings with the Revenue, but generally resist
the idea. Most meetings have been conducted professionally, but several
were used by the Inspector to make sarcastic observations about the client's
apparent wealth and spending, in the hope of unsettling him and pushing
him to agree to the Inspector's ridiculous estimates of his income - this
was nothing to do with telling the truth or otherwise.
The Revenue have no right to insist on a meeting and no call to treat
your unwillingness to have a meeting as non-cooperation.
The Electrician
Thank you all for taking the time to offer your advice. I have contacted
my accountant and requested an agenda before we go any further. I agree
I need to be more prepaired before i attend and hopefully an agenda will
give me a better understanding.
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