Let's not be beastly to HMRC (well, not all the time). By Simon Sweetmanby
Simon Sweetman looks at tax enquiries from "the other side of the fence.
I was talking this week to a bunch of HMRC Inspectors with some experience of working enquiries into small business. We are so used to moaning about the way in which HMRC conducts its enquiry work that we sometimes forget that they are not always the offenders here, and that while they can sound off within the Department their views do not come into the open. A taxpayer can open a website and chunter on at length about his experiences, but officers of HMRC cannot go public about their grievances.
I had been surprised recently to discover from HMRC that the average time it takes them to get the first complete reply in the average enquiry is 90 days – when we complain about the length of small business enquiries we need to bear this sort of figure in mind.
Inspectors feel frustrated by the system, with some of them feeling that the new powers HMRC are taking are still insufficient or that the requirements for record keeping are not stringent enough and penalties for poor record keeping not enforced. In particular they feel that they are hampered by the advice given by the touring tax specialists, which is interpreted by agents as “never go to a meeting with HMRC” and “never supply the records, just make them available somewhere as uncomfortable as possible”. So they believe that there is a culture of obstruction and non-cooperation among accountants when working enquiries. In reality I suspect this is more to do with inexperience and nervousness then deliberate obstruction. And of course, volume of work – who does the thing they don’t understand when there’s a pile of work they do understand to be done?
There was one thing different about these Inspectors from the ones I used to work with. There are twice as many small businesses in the UK as there were 25 years ago, and increasingly those people who enter HMRC will have connections to small business, and that personal knowledge helps to break down the stereotypes of small business as careless fiddlers. It will also mean a clearer understanding of how small business operates in the real world.
Big changes are happening in the world of compliance. The S.9A enquiry for small businesses will not disappear, but it will become – has already become – substantially less common. HMRC is aware that there is far more money to be had in the bulk areas – offshore and onshore accounts, rented property, and so on. It is going to be much more likely when you get a S.9A enquiry that there is something in it, and if there is not and you can explain why not then there is a good chance of a rapid closure. If the “openness and early disclosure” pilot is a success – and early indications are that it is – then the game of liar’s poker than characterises the enquiry at present may disappear: which can only be a good thing.
Perhaps there is a light at the end of the tunnel after all.