As of 1 April 2009, Her Majesty’s Revenue and Customs (HMRC) inspectors will have more powers to help them to deal with corporation and income tax evaders. In fact, inspectors will have the same right of entry to business premises or even home offices as is currently relevant in relation to VAT tax investigations.
These new powers are contained within Schedule 36 of The Finance Act 2008 and have been introduced as one of a number of changes which have been proposed since Customs and Excise and Inland Revenue merged to become the HMRC. Some critics of these new measures believe that the law had not been clarified as well as it should have been before coming into force. One of the biggest concerns is the fact that there are no clearly defined rights of appeal for a tax payer to rely on against a proposed inspection. Generally speaking, critics believe that these new powers are ‘over the top’ and that they go too far.
HMRC inspectors will be able to enter business premises with as little as seven days warning. In some exceptional circumstances, they will even be able to enter such premises without any prior warning at all, although these visits would need to be authorised through a specially trained senior member of HMRC staff. The penalty for preventing inspectors from carrying out their job will be a fine of £300, with a further £60 per day for every extra day they are prevented from inspecting the premises.
The HMRC argues that these additional powers are completely necessary in today’s society where increasing problems are being faced through drug smuggling, money laundering and contraband. The powers will also be exercised for the following:
- When there is suspicion of tax avoidance
- To check that tax returns have been filled out correctly
- To ensure that tax payers have complied with their statutory duty to maintain accurate accounting records
- When tax has been over- or underpaid.
Random checks may even become a possibility as HMRC inspectors aim to deter tax avoidance amongst the general population.
It is generally accepted that this change to the law represents significant increased powers for the HMRC and sole traders and ‘work from home’ entrepreneurs are being reminded of the requirement to ensure that they maintain meticulously accurate records at all times. If they fail to do so, they run the risk of an inspection. If tax payers should find themselves faced with this prospect, they are recommended to seek professional legal advice in the first instance. Furthermore, employees of a company should never agree to an inspection without the business owner’s prior consent.