What HMRC Says …


HM Revenue & Customs (HMRC) has a responsibility to ensure that individuals and businesses are paying the correct amount of tax or claiming the right amount of any HMRC benefits, for example tax credits.

HMRC needs to make sure that everyone meets their responsibilities so they carry out compliance checks – sometimes referred to as enquiries, investigations, inspections or assurance visits.

In general terms, HMRC carries out compliance checks to make sure a specific tax return or claim is correct and/or to check that any payments are for the right amount and are made on time. Another reason for a check is to discourage evasion and make sure the tax system is operating fairly, so some checks are made on a random basis.

Starting a compliance check does not necessarily mean that HMRC believes there are any serious problems, many checks are routine.

Overview of compliance checks

HMRC believes that most of their customers are honest and aim to treat them all with respect.

Generally something will have triggered a check. For example, when figures entered on a return appear to be wrong.

Another example is when a very small business suddenly makes a very large claim for VAT, or one with a large turnover declares a very small amount of tax. The only way HMRC can find out whether the return is correct is by carrying out a check.

If the check shows that there is nothing wrong, HMRC will bring it quickly to an end. If the check shows that something is wrong, HMRC will work with you and your client to put things right. If any tax has been overpaid, it will be repaid with any interest that is due. But interest may be charged on tax that is underpaid.

HMRC may also issue an assessment or amend the relevant return, depending on the type of tax involved, to collect any unpaid tax. In some instances, an error that relates to one tax will mean that another tax also has to be corrected. For example an error in charging excise duty on goods sold generally means the VAT charged on the sale may also be wrong.

You can ask for a review of, or appeal against, most of HMRC’s decisions on your client’s behalf. The decision notice issued by HMRC explains what you can appeal and what you can’t.

Working with clients and HMRC

If you are already authorised to act for your client, you can continue to represent them during the course of the check. HMRC will be able to deal with you direct – provided your authorisation covers all the matters that are being checked. You may also be asked by a potential new client to represent them if HMRC has started a check into their tax affairs. Whatever the circumstances, the legal responsibility for correctly making returns and payments remains with your client so it’s also a good idea to have your responsibilities agreed in writing with your clients in a formal engagement letter.

Compliance checks should be viewed on a case-by-case basis. Some checks may take considerable time and some, by their nature, will be more detailed than others. You may wish to consider offering clients insurance against professional costs incurred as a result of a compliance check, or to refer clients to specialists in this field. Whatever you and your client decide, the appropriate authority must be in place before HMRC can deal with you direct.

Handling a check efficiently and quickly is in everyone’s interests – yours, your client’s and HMRC’s. However, how much you co-operate with HMRC is at yours and your client’s discretion. Bear in mind that if the check results in a penalty, HMRC will consider how much co-operation was given when deciding if the penalty can be reduced. In general, the more help HMRC receives, the lower the penalty will be.

Related Members Posts

HMRC Set to Regain Preferred Creditor Status

Fears that Autumn Budget move may lead to harsher treatment of taxpayers and a more aggressive approach from the Revenue The Government has announced that, from 2020, HMRC will become a preferred creditor in insolvencies. Currently, an official ‘hierarchy’ laid down by the Insolvency Act, 1986, determines which creditors are paid first during an insolvent…

A Tasty Triumph

Subway franchisee’s appeal against VAT assessment is successful The First Tier Tribunal considered whether the VAT assessments raised by HMRC in relation to a Subway franchise were excessive and unreasonable. HMRC had based their assessments  on the fact that the standard rated sales during their selected periods of invigilation were higher than reported. The Tribunal…

Overdue VAT Reaches Five-Year High

There has been a 22% rise in the value of unpaid VAT owed to HMRC by UK businesses to £3bn, up from £2.48bn the previous year, as late payments leave businesses with cashflow difficulties. A study, carried out by online business supermarket Funding Options using freedom of information (FOI) requests, also showed that outstanding corporation…