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Freelance journalist Nick Morgan, author of 'Tax Investigation For Dummies' looks at HMRC's approach to requesting personal records in enquiry cases.

Introduction

Without saying a word HMRC have removed a section of the Compliance Handbook – the manual for tax investigators.

The section missing is CH223430, which stated Revenue & Customs had to either ‘break’ the business records (prove something was badly wrong) or show that the personal finances were inconsistent with the business records (so you are saying your turnover is £10,000 but you have a helicopter in the back garden of your mansion) before they could legitimately get their hands on personal statements. The bottom line was, if they couldn’t find anything amiss they couldn’t have your personal records.

New Demands

Mark Morton, head of tax at Mercia Group, said the goal posts have been moved: “I’m increasingly coming across requests for private bank account details in opening letters and in early meetings HMRC have focused purely on the private affairs, have ‘interrogated’ the taxpayer and demanded private accounts.”

Anne Eager, Enquiries Manager at Robert James Partnership, confirmed the new approach: “I’ve had requests for private bank records for my clients in opening letters, when I challenged the request the Inspector said that it was to save time as he felt it was very likely there were issues with the records and added this was a ‘standard approach’ under the new regime.”

Human Rights Wronged?

This new hard-nosed approach contravenes Article 8 of the Human Rights Act, which sets out the right to privacy and, equally importantly, gives HMRC carte blanche to be intrusive, petty and pedantic.

Chris Chadburn, director of tax specialists at Venntax said: “I go to a football match with a five friends, I put all the tickets on my credit card. My friends give me cash, which I use to pay the card. HM Revenue & Customs can look at that cash entering my account and say it is undeclared earnings. They can also look at every single credit and ask where it came from - did your mum give you a £100 cheque for your birthday four years ago? HMRC may want to see proof. That is the danger of allowing your personal records to be seen.”

What is the Correct Position?

While Revenue & Customs has removed this caveat from the Compliance Handbook the rights of those being investigated remain unchanged.

Ronnie Pannu at PriceWaterhouseCoopers said: "Inspectors can be overzealous and when that happens we have to remind them that they need to 'break' the business records before they can look at personal statements. If they insist we can take the issue to a Tribunal."

Revenue & Customs said, “It is intended that the contents of CH223430 will be reinstated in due course.”

This page was originally published in a different form in the Mail on Sunday and can be read here: Revenue Cuts Corners in Bid to Net Cheats the original piece in Taxation can be read here: A Very Private Affair and there is a blog post here Story Behind the Mail on Sunday Piece

The above is an extract from Tax Investigation for Dummies' by Nick Morgan, a freelance journalist who was the subject of an HMRC enquiry into his self-assessment return. The book can be ordered from TaxationWeb's sister website, TaxBookShop.com (Tax Investigation for Dummies).

[ For further information on HMRC access to personal records, see Private Bank Accounts: Open Season? - Ed. ]

About The Author

At the start of 2005 Nick Morgan was working as a self-employed freelance journalist. HMRC opened an investigation into his tax return.

Nick attended an interview (unrepresented) and was both open and truthful. He also supplied all the documents asked for.

An investigation like this which is small and where there is full cooperation shouldn’t have lasted more than 12 months. But this went on for five years.

The investigators were bullish and petty with HMRC showing neither proportionality nor regard to the cost (to the taxpayer) of running such a small investigation for so long.

Nick used his journalistic skills to expose HMRC; he recorded telephone calls and interviews and carried out Freedom of Information and Data Protection searches. These investigations broke new ground and exposed the investigators as incompetent and vindictive. All this information was uploaded on a website for anybody to see.

It soon became apparent that what was happening to Nick was typical of what was happening up and down the country.

Nick further exposed HMRC’s underhand practices in a Sunday Times spread and other national papers.

Since then HMRC has put pressure on its investigators to be more proportionate and to be more mindful of expense.

To help others Nick built tax-hell.co.uk where he’s written broadly about tax investigation, tax law and the tactics of HMRC.

The website has helped 100s of 1000s. Some leave comments about how Tax-Hell.co.uk has helped them. Many say, “I don’t know what I’d have done without you.”

He’s written three ebooks which translate HMRC-speak into clear English and he also offers free tax advice (from a fully qualified advisor) to anybody who needs it.