Why dont HMRC check between departments before commencing an investigation?

You are in the frame of mine of "dreaded tax investigation" whereas HMRC are in the mind of "routine enquiry to check tax affairs".  They have every right to check a tax return, with or without further explanation, and I think it's absolutely right they do so to ensure sufficient checks take place to deter evasion.  All HMRC want is some sensible answers so they can close the enquiry and move in - you provided it.  

Your perception of this story seems to be that it's a massive deal, whereas my perception would be that it's just routine.

Unfortunately even if it is routine to HMRC, and us to an extent, to the client it is often a massive deal and very stressful.  Even if they know they have not done anything wrong, I have had clients not sleep for months over 'routine' enquiries which have resulted in no adjustments being made.  This is despite my constant reassurance.  It is often a big deal for those for whom it is not routine.

I'm NOT a tax expert - as "thisistibl" is well aware - but (like Sarah Deeks LLB FCA) I'm passionate about the need to make difficult but essential subjects like tax accessible to everyone, in particular by inserting a "fixed costs recognition" device into S.I. 2000/727 section 7 (1) Step One to (A) preserve the key points of anti-avoidance of NI by "Friday to Monday" employers & really big earners like a hypothetical DG of BBC, and (B) to introduce a new cost allowance - in addition to the 5% currently - of VAT Registration Threshold for those workers who've got a gap of over 200 working days from a previous contract for service, to remove some uncertainty from IR35 that is both not fair and also not straightforward.

In view of the foregoing, could it be that the wife with the "part time job" could currently be subject to IR35, whereas with my suggested amendment to IR35 she wouldn't be obliged to make extra payments, please?

Given the well publicised propensity for HMRC to cock things up I am not of the opinion that a 'routine' enquiry is not something to worry about, especially to a non financial person!

Oh, and while I am at it, they aren't even clued up enough to check whether a company is up to date with their PAYE before making refunds of VAT so I doubt checking an individual's overall tax situation is within their capabilities!

You're assumsimg HMRC have the ability to "check between departments" I don't think they do

I don't work for HMRC, it's just that my opinion is more fully considered.

You say that you are aware of HMRC's rights, but then say they "have a duty to make sure they are in possession of all the facts".  That's not true - where in the legislation or in their guidance does it say that?

Perhaps your job should be to explain to your client that it's nothing to get excited about, just relax - it's a routine inspection and we will aim for it to run it's course smoothly and as quickly as possible.  If your approach with your client is "this is outrageous!" then you're going to get your client more irate which will involve more conversations with your client, and probably a harder time justifying your fees.

Happy to be of assistance, even if it's only amusement factor :)

Shame the benefits office are not more careful before handing out our well earned Taxes!!!!

HMRC does have a right of routine enquiry that is its job.

However....invariably they seem to have out of date or incorrect information that they seem to believe / have faith in.....

This leads to them continually/routinely picking the wrong cases for enquiry.

This is a waste of everyone's time. (good for tax fee protection insurance) ?(there's not a kick back to HMRC like the telephones and injury lawyers is there ?)

Good for tax evaders as they never seem to get a tug and when they do it is a light touch.

These are supposed to be the days of intelligence led policing but I have not seen much evidence of it working.

Facebook-like conversations aside, in my opinion an HMRC full or aspect enquiry is generally opened based on a desk top risk assessment. This will usually be stressful to the client/taxpayer because its personal.

I think the point is that clients need to know that an HMRC RISK assessment is not an ISSUE unless there has been a tax defalcation.

If the facts and evidence point to compliant tax behaviour by a taxpayer, then whilst a tax enquiry is not nice, the accountant will probably enhance his client relationship if the case management was appropriate and expeditious. Even if there is a tax irregularity, the matter can be concluded within a reasonable time frame - if not then the matter should be referred to a specialist.  

I accept that sometimes its difficult to predict HMRC next actions, but generally experience prevails.

I am suprised that a low level enquiry of this nature is still going ahead, but if the client is advised appropiately and that advice is covered by insurance fee protection then a sensible exit should be achievable without too much stressful downtime.

I thought his first reply was helpful and constructive and not deserving of the somewhat intemperate response of the poster. HMRC have the right to enquire - that is the quid pro quo for our right to tell them the amount of our taxable income. I would say that, in the absence of any other reason for opening the enquiry, HMRC have presented you with an open goal - find out what their opinion of your client's expenditure is, then fill in the gaps in their knowledge of the couple's income. Cue collapse of stout party.

Your responsibility is to calm the client, do the job efficiently, then trouser the fee (you have fee protection). Sorted! 

It used to be the case that an inspector could access a computer and get a multitude of information on his potential victim and could carry out his own checks to make sure that he has a reasonable chance of getting some money.  With the exception of random enquiries, which he had to investigate, he could then if appropriate decide not to open an enquiry.  Now inspectors no longer have routine access to information and have to go through hoops to get information.  In view of this they are forced to rely on the information packs given to them, which are not always very good and in addition to this in most cases inspectors dont have the authority to reject an enquiry.

In the case referred to by you the inspector has told you the reason for his enquiry.  I would cut to the chase and send him a breakdown of your clients expenditure along with evidence of his income and bank statements to back this up and at the same time ask him to issue a closure notice.  Having nailed his colours to the board by giving you a specific reason for the enquiry once his concern has been addressed he has little option other than to close the enquiry.

Wow.....You must deal with a very different HMR&C than I do! They have an overall responsibilty to ensure that they are in possession of ALL the facts that they could reasonably be expected to obtain BEFORE an enquiry. This is common law ....not Taxation Legislation and HMR&C are NOT above the law of the land.They turn ordinary peoples upside down and cause unneccessary stress because of sloppiness and poor communication.

In 28 years I have handled three tax Investigations. The first was mistaken identity, the second sour grapes from an employee that had been sacked making a false report to HMRC, the third was for a neighbour who had got himself in a mess doing his own returns and come up against a *** of an inspector. The first client almost committed suicide after leaving HMRC's interview. His wife and I found him in time, The second knew they had done nothing wrong and did not worry too much but they were highly intelligent people who understood how the system works and were absolutely clear they had nothing to hide, the third were shell shocked by the lies and depths of deceit that the Inspector who had carried out the initial investigation was prepared to go to to score points.

It is the third investigation that left me with a lasting feeling for how it felt to be on the wrong side of the Tax man. The Inspector's case had massive holes in it and we asked for the case to be reviewed by another inspector. We were invited to attend a meeting with the then area manager and the investigating officer. Every word he said was a lie and the area manager ended up disciplining him in front of us - she was very angry. I am told he was sacked afterwards. However the words that left the impression on me, and the area manager when I told her, came from my client's wife who had been present. As we left she asked if it was really over - the Inspector had been claiming a large sum of money. I said it was - we did in fact get money back - and she burst into tears. I asked why and she said "I feel like I have been told we both had terminal cancer and have just been told it was all a big mistake. They had three young children. It was by no means a flip comment, her mother had recently died from cancer. 

Routine or not to us and the powers that be, these letters have devastating effects on our clients and we should do everything possible to prevent our client's from being in that position so well done to the original poster for caring enough to be upset on behalf of his client. I am 100% with you in your approach.

Since I started my practice in 2009 I have had four separate clients on the phone to me in tears after either phone calls with HMRC or letters from HMRC.  Not enquiries, not investigations, just calls or letters.

I had a credit control meeting in November 2011 and the HMRC people who came could not have been nastier, more unfeeling if they had tried.  They were presented with my client and the following informaion:

1.  Her recent illness which had left her face and body covered in red blotches.

2.  Her business was wiped out in the Nov 09 floods in Cockermouth and still has not fully been paid out by the insurers.

3.  She had a premature baby born in 2010 and his health has not been great.

Despite this they attempted to wind up her perfectly solvent business (if you take account of insurance money owed) and throw 13 employees on the dole.  Luckily wiser council prevailed higher up the food chain.

My client was an emotional wreck after this one hour meeting.  Now let's be clear about this, many people regard me as being tough as boots and I've saved clients tens of thousands in buying and selling businesses by being hard as nails for them in negotiating.  But I can honestly say there is no way I'd ever have behaved as badly as those 2 characters did in that meeting.

There are some bullies out there....wish they would pick on some that need bullying.

We have had collectors banging on doors when the overpayment from the previous year covered it. Client did not even have notice of o/s amount before they called. All got sorted in the end but it was hard work for no fee. The first job was stopping the tears.

One HMRC department will often refuse to speak to another so you have to write two complaint letters.

No I dont deal with a different HMRC I worked for a different HMRC for 34 years.  You might think that the inspector has information at his fingertips but what he is able to look is very much restricted by internal procedures.  He has to rely on what is given to him in an information pack and it is very difficult for him to now check this information or obtain further information.  Having said that although the information is not always either up to date or totally reliable it usually gives enough information for any good inspector to build a strong case.

Going back to the original question are you sure you are aware of all the facts.  Please bear in mind that the inspector will probably have your clients credit history infront of him before he opened the enquiry.  He will therefore have full details of your clients credit history and current borrowings.  You would be surprised how often accountants are caught on the hop when they find out that their honest client is making loan repayments that they simply dont have the money to pay.

Mike, you'll like this one if you have not seen my post on it in 2011.

My client was selected for a PAYE enquiry, starring two HMRC folk from Preston office for the day - 90 miles away.

We rang up. 

Us : "What is the reason for the enquiry?"

HMRC:  "False self-employment in the dancing school sector."

Us:  "We have 23 staff, all employees.  We have no self-employed dancers, we paid £17k in PAYE and NI in 2010-11."

HMRC: "Did you?"

The next day they cancelled the trip.  You can't make this stuff up!

Has any body out there tried successfully to record (audio and/or video) an HMRC interview of one of its "Customers" being interviewed as part of an "HMRC investigation routine enquiry", because the following 3 horror stories indicate to me that the mis-behaviour might be modified if it were to be recorded as part of the "tax payer customer's tax records" and "customer service":

(1) ChrisL wrote 1Feb'12 QUOTE in my opinion an HMRC full or aspect enquiry is generally opened based on a desk top risk assessment. This will usually be stressful to the client/taxpayer because its personal ENDQUOTE, and

(2) beverly chesterf wrote 1Feb'12 QUOTE In 28 years I have handled three tax Investigations. The first was mistaken identity, the second sour grapes from an employee that had been sacked making a false report to HMRC, the third was for a neighbour who had got himself in a mess doing his own returns and come up against a *** of an inspector. The first client almost committed suicide after leaving HMRC's interview. His wife and I found him in time, The second knew they had done nothing wrong and did not worry too much but they were highly intelligent people who understood how the system works and were absolutely clear they had nothing to hide, the third were shell shocked by the lies and depths of deceit that the Inspector who had carried out the initial investigation was prepared to go to to score points ENDQUOTE, and

(3) mr.mischief wrote 1Feb'12 QUOTE Since I started my practice in 2009 I have had four separate clients on the phone to me in tears after either phone calls with HMRC or letters from HMRC.  Not enquiries, not investigations, just calls or letters.

I had a credit control meeting in November 2011 and the HMRC people who came could not have been nastier, more unfeeling if they had tried.  They were presented with my client and the following informaion:

1.  Her recent illness which had left her face and body covered in red blotches.

2.  Her business was wiped out in the Nov 09 floods in Cockermouth and still has not fully been paid out by the insurers.

3.  She had a premature baby born in 2010 and his health has not been great.

Despite this they attempted to wind up her perfectly solvent business (if you take account of insurance money owed) and throw 13 employees on the dole.  Luckily wiser council prevailed higher up the food chain.

My client was an emotional wreck after this one hour meeting.  ENDQUOTE.

SUM UP: HMRC's "customer service" practices could apparently be improved, if "training" recordings were made, and were to be made available for the record and for "HMRC re-training". 

RECOMMENDATION TO HMRC: Just allow recordings, please.

Under these dreadfull circumstances I wouldn't advise the client to have had a face to face meeting with HMRC. There appear to be trong grounds of reasonable excuse.

HMRC do do taped interviews under caution in criminal prosecution cases. Would you really want a taped interview in a civil tax investigation case? Even, if HMRC over step the mark, the facts are the facts. If the meeting gets out of hand then terminate it. Better still, turn it around by being a strong but reasonable advocate advocate.

Mike

He won’t try to manipulate the out of date information he will get up to date information from your client to verify information held by him and will only make a direct challenge using his information as a last resort.  The information he has will simply guide him to areas worth looking at.  With regard to information not being up to date or reliable this is the case and he will know that.  Banks for example don’t always submit the correct information regarding interest paid, Experian credit reports have been known to contain errors and we know the mess the tax credit system is in.

You mention that your client is in receipt of tax credits.  You will of course know that if income has been under declared any claim to tax credits will be looked at and I don’t need to tell what the consequences of a false tax credit claim are likely to be. 

Steve

To avoid your client having "Red mist rising" at the interview, then perhaps you (Mike or a sensible colleague) should consider being present, if only to unambiguously terminate the meeting should it get out of hand (as suggested by ChrisL), because you've known the man a long time.

I had a client, many years ago now, who ran a  Line Dancing Club and who was selected for a full investigation.  How> Why?  It would appear that a Revenue employee, who also happened to be an Inspector's wife, started a part-time Line Dancing  Club herself and wanted to get rid of the opposition. It worked!  I kid you not. Its a sick old world.

A few years ago I represented a friend, who was a self employed plumber, in a back duty case - he had failed to register as self-employed or make a tax return for 6 years and had been "found out" by the Revenue!

Having prepared accounts from scratch - a big box of "bits of paper" and bank statements,  we were "invited" to a meeting with the Inspector to discuss the investigation.

We duly turned up at the meeting, and the Inspector immediately said "I have a colleague sitting in to record the meeting by taking notes of what has been said."

I immediately countered by saying "I have no colleague, but with your permission I will record the meeting!" and promptly took out a hand held tape recorder and set it going! There was a look of surprise from both revenue Inspectors at that, but they could hardly complain!

The meeting lasted for over 2 hours and I had to change tapes at least twice. The Inspectors were very well behaved and very courteous during the whole meeting, and my client got a good result with less than expected penalties due to our "efficient handling of the investigation"!

Following the meeting I typed up the notes and sent a copy to the Inspector, for his approval, and I also kept the tapes for a number of years, just in case!

I do wonder however, how courteous and friendly the whole thing would have been if I had not had that tape recorder with me!

say nothing....you can always clarify/correct a written recollection later.....And I would have thought it limited both sides negotiations.........You might find the letter of the law is adhered to if it is all taped ? Not for me I'm afraid.

Most inspectors are polite and well mannered if you treat them with a bit of respect...there are some that pounce in like lions but they usually leave like lambs.

HI, I have only just caught up with this post again. I did put in a formal complaint in respect of the case I first mentioned and the last one. I rarely complain as our local district in particular is under extreme pressure with far too low a staffing  level.

In both instances my complaint was taken seriously and the chap who had done the first interview was sidelined from his career track. I did not record the conversation but I did ask for a copy of the typed up transcript. Months later I received a phone call from a senior member telling me the chap had been up to his tricks again, bullying customers, and had now been sacked so yes, people should give HMRC quality feedback. In the later case the presence of the Area manager was enough to resolve the issue fairly. I would have loved to be a fly on the wall afterwards though, she was clearly furious with the guy who had done the initial investigation.

Personally I refuse to speak to anyone who is aggressive telling them to call me back when they can be polite. Sometimes they do and they apologise, sometimes they get someone else to call. It suits me either way. I tell my clients to refuse to speak to them and ask HMRC to phone their Accountant - the ID factor on the phone makes that very easy to do and even if a bailiff calls at their home, they have a reasonable argument that they do not really know whether they are from the Revenue. I have had one or two very frustrated and sometimes hostile Bailiffs phone as a result but we have then been able to quickly resolve the issues and everyone is happy.  

It is really scary to most people when they get out of hours phone calls or visits from officials but I have to say that some of the initially more aggressive officers have become very reasonable and helpful when they realise that you do have a valid argument or have been trying to negotiate a payment plan for the client, often accepting an arrangement that the Debt Management Office refuse. Many have then gone on to tell me to call them if I have a problem in the future and cannot get information!

It is all about staying calm yourself but that is something old age teaches you!  

I agree with the sentiment that HMRC should check between deparments before commencing investigations - and they do have the power to do so.  I am currently undergoing an allegedly "routine" check.  In Feb 2012 I received a random compliance check from the Tax Credits office.  I duly sent off the requested receipts, invoices, diary of work, bank accounts and all the other stuff they requested including details of the benefits I receive.  This was all checked and came back fine and the enquiry was closed.  Now two months later I receive another "random" self assessment enquiry check for the same period.  The opening letter demanded personal bank accounts from me, my partner and all my children, which it stated was reasonable when "profits were low and personal means were a risk".  My profit from self employment is small - around £50 per week and I also receive tax credits and a small amount of social security benefits - all of which had been verified by the first inspector.   I know they can check between departments because the tax investigator has said he will get the information he needs from the Tax Credits inspector.  The stress this whole episode has caused me is immense and I dont exactly know what they are hoping to acheive. They have already seen bank accounts, the amount of my gross profit is under my personal allowance so there is no question of any tax to pay.