Dealing with HM Revenue and Customs (HMRC) is rarely a pleasant task. For example, an enquiry by HMRC into a self-employed individual’s tax return and accounts can be a time-consuming, stressful experience for the taxpayer (and sometimes his or her adviser as well!), not to mention the financial cost implications (e.g. additional professional fees).
Answering questions from, and generally interacting with, HMRC officers can be an intimidating experience, particularly during an enquiry. Fortunately, HMRC has a Charter for taxpayers (‘Your Charter’). There is a legal requirement for the Charter to “…include standards of behaviour and values to which [HMRC] will aspire when dealing with people in the exercise of their functions” (CRCA 2005, s 16A(2)).
‘Your Charter’ applies to the conduct of HMRC officers during an enquiry, although it is important to appreciate that it applies to HMRC’s interactions with taxpayers generally. The Charter was amended in January 2016. The amended version broadly comprises seven taxpayer ‘rights’:
- ‘Respect you and treat you as honest;
- Provide a helpful, efficient and effective service;
- Be professional and act with integrity;
- Protect your information and respect your privacy;
- Accept that someone else can represent you;
- Deal with complaints quickly and fairly;
- Tackle those who bend or break the rules.’
How can it help?
In the context of a tax return enquiry, the rights that taxpayers and agents should monitor in particular are the first and third above; the first in respect of the HMRC officer’s conduct from the outset of the enquiry; and the third in terms of HMRC’s approach to the enquiry in general (e.g. helping to keep the practitioner’s professional fees to the client as low as possible).
HMRC states: “We’ll presume that you’re telling us the truth, unless we have good reason to think otherwise.” However, taxpayers and agents might be forgiven for thinking that HMRC sometimes seem to take the opposite approach.
For example, in the course of a tax return enquiry, a self-employed individual with a cash-based business (e.g. a café proprietor) might find that HMRC attempt to discredit the accuracy and/or completeness of his accounting records (a practice commonly known as ‘breaking the records’), with a possible view to increasing turnover and taxable profits for the year of enquiry (and possibly for other tax years, as well). A respectful reminder by the taxpayer or agent of the Charter standards required of HMRC may sometimes be appropriate.
Interestingly, the latest Charter also contains seven ‘obligations’ (ie what HMRC expects from taxpayers), namely: ‘be honest and respect our staff; work with us to get things right; find out what you need to do and keep us informed; keep accurate records and protect your information; know what your representative does on your behalf; respond in good time; and take reasonable care to avoid mistakes’.
The taxpayer obligation to ‘keep accurate records’ is a change from the previous version of the Charter (which stated that HMRC expected taxpayers to ‘keep adequate records that support what you tell us…’), and suggests a requirement for a higher standard of record-keeping.
In the above example of a self-employed individual with a café, a potential problem with this obligation is that HMRC could conceivably argue that they need to check the integrity of the business records to confirm that the taxpayer’s Charter obligation to keep accurate records has been met, with a view to ‘breaking the records’ in which case the taxpayer’s Charter right that HMRC must treat them as honest would not then apply.
Your Charter’ can be downloaded from the Government’s website (https://www.gov.uk/government/publications/your-charter/your-charter). Make sure that HMRC adheres to your rights under the Charter, and remind them if necessary. A complaint against unacceptable behaviour by HMRC could also be considered in appropriate circumstances (see: https://www.gov.uk/guidance/complain-to-hm-revenue-and-customs).
The above article was first published by Business Tax Insider (April 2016) (www.taxinsider.co.uk).