A year on from the introduction of HMRC’s new inspection powers and compliance checks, tax agents and practitioners are still finding it hard to adjust to the new regime.
Evidence from the Chartered Institute of Taxation, CCH Fee Protection and AccountingWEB.co.uk members paints a picture of uncertainty, occasional inconsistencies and client ignorance about the nature of the visits and the potential penalties under the new regime.
The CIOT report
points out that over the past year, “there has been a greater level of response (formally and informally) on this issue than any other”.
Launching the report, CIOT president Andrew Hubbard was relieved that the worst fears about excessive and inappropriate use of the new powers have not been realised, but noted a lack of clarity about who the new powers will be applied in which circumstances.
“Additionally, we have identified concern around how the new penalty regime is being operated,” he said. “HMRC seem reluctant either to impose high penalties for deliberate understatement or to accept that there have been innocent errors in some cases, instead going in almost every case for the middle option of determining a failure to take reasonable care.”
CCH Fee Protection confirmed that by December 2009 claims were up 60% on the previous year following the introduction of the new regime. CCH highlighted the issue as one of the top sources of practitioner stress, mainly because they and their clients’ weren’t sure about how to deal with the checks.
According to CCH, practitioners still need to get used to the idea that compliance checks range across all types of tax and can expand into full aspect enquiries that take in previous years.
To add to agents’ stress levels, the CIOT report noted that in some cases where agents don’t have authorisations to act on a client’s behalf for a particular tax type, they may not even know that an enquiry is taking place. Often tax agents will advise clients on some aspects of their tax affairs, but not get directly involved in the process because of the paper chain that can result. HMRC’s current systems for agent authorisation do not lend themselves to setting up this type of authorisation, the CIOT noted, so for the moment an informal workaround has been created that does not undermine client confidentiality but still allows agents to be aware of enquiries.
As the new regime bedded in, our
devoted considerable time to understanding how they were being applied. Discussion group leader Ros Martin commented: “As with all new powers gained by HMRC, it is important to appreciate the scope of the new provisions which underpin the new approach. It is vital that HMRC do not exceed their powers simply because taxpayers do not understand what the limits are. Equally, it is unhelpful if taxpayers argue against new procedures which are in fact legitimate as this increases frustration for all involved.”