Risk & Economy » Tax » Taxman’s knock

The taxman intends to spend more time out of the office, in order to spend
more time visiting UK plc. And we’re not talking social calls. Schedule 36 of
the Finance Act 2008 sets out a mixture of new and consolidated powers to allow
tax officers to visit business premises, gather information, and copy and remove

Giovanni Bracco, a partner in PricewaterhouseCoopers’ tax investigations team
calls the new HM Revenue & Customs compliance power “a revolutionary change”
for direct taxes. “For the first time, HMRC will have powers to access records
before returns are filed, turn up unannounced to ‘check’ the records and
routinely have access to business premises and assets,” he says.

Rights and wrongs
The implementation of the Finance Act marks a new beginning in the
information-gathering powers of HMRC, so finance directors need to be aware of
the responsibilities the new legislation places on them and, equally, the rights
they and their businesses have. Gary Ashford, a spokesman for the Chartered
Institute of Taxation (CIOT), says, “The Revenue has been given new powers and
we can assume they intend to use them.”

FDs and their tax advisers must await guidance from HMRC on how it intends to
interpret the law. HMRC says it doesn’t know when that guidance would be
available. A spokesman for the ICAEW says, “Schedule 36 is only 25 pages in
length, but many of its provisions are controversial and arguably give HMRC much
greater powers than those it enjoys under current rules.”

The government is keen to play down the idea of heavy-booted tax inspectors
demanding open access. Speaking in the House of Lords in July, government
minister Lord Davies of Oldham said that schedule 36 includes a requirement to
act reasonably and gives companies new appeal rights and authorisation

“Further safeguards are then planned in guidance and codes of practice, on
which HMRC will consult,” Lord Davies said. “This is an example of where we have
listened carefully to stakeholders throughout the process. The review of powers
is a careful process. It takes between one and two years to develop each
proposal, working throughout with business and the professions. We have
responded to concerns throughout, making changes where a clear case to do so was
made. This approach has been praised by key stakeholders.”

It is hard to find evidence of praise, as such, but the Labour peer was right
about HMRC consulting on guidance codes. Much will depend on how HMRC applies
the rules in practice, but UK business is entitled to expect that HMRC will
ensure its inspectors are properly trained and that they follow HMRC’s guidance.

Even without that guidance tax, advisers say they have seen keen interest
from FDs to receive training and information about the new powers. FDs were less
than willing to speak on the record about the changes. “Schedule 36 was seen as
pretty controversial in principle, but exactly how worried taxpayers should be
depends on how HMRC implements its powers,” says one FD who didn’t want to be

Retaliate first
Tax advisers suggest that FDs should be formulating plans to deal with this
legislation even before the guidance is published. John Cassidy, a partner in
PKF’s tax investigation practice, says HMRC now has powers to visit and inspect
business premises and information gathering powers which previously it didn’t

This law isn’t a charter for dawn raids, however. During the passage of the
bill, amendments were made ensuring that, in most cases, seven days’ notice has
to be given of a visit, imposing a restriction on HMRC that unannounced visits
cannot be made to the premises of a third party.

But once through the door, the taxman can go where he pleases. “We are
advising finance directors to have a ‘raids policy’ in place,” Cassidy says. If
a company is approached by the taxman, it should always check that the request
is technically valid. After all, officials have been known to get the technical
details wrong.

HMRC is unlikely to be interested in just one type of tax. It also seems
possible that these powers, at least at first, may be used against smaller
companies where the information will be centred on one location.

“The Revenue is unlikely to use these powers on a huge multinational where it
could take months to get round one site. It is likely to choose companies it can
manage,” says Cassidy.

There is plenty that FDs can do to try to stay off the ‘hit list’, however.
HMRC employs risk profiling to see which businesses look good bets for further
investigation so FDs who ensure tax returns are in on time and that tax due is
paid by the correct date are edging their company out of the high-risk category.

Useful links
For Schedule 36 of the Finance Act, go to
then click on 2008 and scroll down for the Finance Act