Practice note: Inspection of business premises – a trying experience for the client
An HMRC inspection of business premises can be an unwelcome intrusion into a client’s business affairs. This note sets out what HMRC can and cannot do, with some practical advice to taxpayers and their clients faced with HMRC inspections.
What HMRC can do
The legislation (FA 2008 Schedule 36) gives an HMRC officer the power to enter a person’s business premises and inspect the premises, business assets and business documents ‘if the inspection is reasonably required for the purpose of checking that person’s tax position’. An officer can also enter and inspect business premises, goods and documentation for VAT purposes. An inspection can be carried out without advance warning to the taxpayer, although the usual rule should be that HMRC give at least seven days’ notice.
Safeguards for the taxpayer
There are some limited but important safeguards for the taxpayer as follows:
- The powers do not permit the searching of premises, forcible entry or dawn raids;
- The inspection must be reasonably required to check the taxpayer’s tax position;
- The inspection is limited to business premises although HMRC may inspect the part of a private dwelling used by the taxpayer for business premises;
- The inspection must either be conducted at a time agreed to by the occupier of the premises, or on at least seven days’ notice or, if conducted without warning, at least at a reasonable time.
There is a penalty of £300 for deliberately obstructing HMRC during the course of an inspection with subsequent penalties of up to £60 a day for as long as the obstruction continues. There is a right of appeal to the Tribunal against the imposition of a penalty, on the basis that the taxpayer has a ‘reasonable excuse’ for the obstruction. So, for example, if the officer of HMRC insists on inspecting a part of the premises used for non-business purposes, it may be reasonable to prevent him from having access and so obstructing the search.
The following points may be helpful for taxpayers and their advises in dealing with an inspection.
- An inspection may a) be by agreement with the taxpayer, b) by notice of at least 7 days, or c) with no notice, effectively unannounced. If c) the HMRC officer would only have authority to enter and make an inspection if the inspection was carried out either by or with the agreement of an ‘authorised officer’ or with the approval of the Tribunal. If so, the HMRC officer seeking to carry out the inspection must ‘provide a notice in writing’. That notice must state the possible consequences of obstruction. If the Tribunal has approved the inspection, the notice must state this fact. The officer should be asked for to produce this notice and also asked why an unannounced visit has been deemed to be necessary by HMRC and the reasons given carefully noted;
- Accompany the officer(s) yourself in their inspection of the premises and remember that anything you say during the inspection may be noted by the HMRC officer. An alternative might be for a trusted employee to accompany the officer, but only on the basis that he or she is to give simple answers to factual questions and refer any other points for your client’s attention;
- If the inspection involves more than one HMRC officer (and this is increasingly likely if the business is VAT registered), you need to consider how each can be escorted if they are not staying together;
- Remember that this is an inspection and not a search. HMRC do not have the right to remove items without permission of the taxpayer.
- An HMRC officer is entitled to record information relating to premises. That could extend to photographing or videoing anything that is visible to the officer. Caution would be needed if the officer is to make a sound recording;
- Where a business is conducted from premises that are also used as a dwelling it is essential that the officer is told, at the outset, what parts of the premises are used solely as a dwelling as they are off limits;
- At the end of their visit, HMRC officers should state what will happen next; for example, whether the officer will be returning to continue the inspection;
- Documents or records that are legally privileged, should not be disclosed to HMRC.
Levy and Levy – the tax resolution and investigations specialists in London and Tunbridge Wells.