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SA
ENQUIRIES 1
RECEIPT ON THE OPENING LETTER
26.01.06
This
is the first of a series of short articles on self-assessment
enquiries. Its purpose is not to consider the law, except
peripherally as necessary, but to concentrate on the
more practical aspects. Experience suggests that many
practitioners are either not aware of their client's
rights or are reluctant to enforce them. I will concentrate
on income tax for convenience but, broadly speaking,
the comments will apply equally to corporation tax enquiries
although the statutory context to the two is not completely
identical.
Like any enquiry, this series starts with the opening
letter. The first thing to realise is that the opening
letter is not part of the statutory scheme of self-assessment.
It is an extra-statutory Inland Revenue procedure. As
such there are no statutory rules governing it and no
statutory requirements connected with it. Nevertheless
it needs to be approached in the context of the statutory
scheme.
This
is:
(a) The taxpayer must complete a tax return if required
to do so.
(b) HMRC are entitled to enquire into any return to
satisfy themselves that it is not incorrect or incomplete.
(c) HMRC have specific and limited - powers to obtain
information, subject to a right of appeal for the taxpayer
if he does not believe that the information requested
is reasonably required for the purpose of checking the
return.
(d) When HMRC complete their enquiry they must issue
a completion notice. If as a result of the enquiry they
believe that the tax due has been understated they are
entitled to amend the return to reflect what they believe
to be the amount actually due.
(e) The taxpayer has a right of appeal both against
the issue of the completion notice (although it is difficult
to envisage why anyone should want to seek to force
HMRC to extend an enquiry) and against an HMRC amendment
of the return.
The
reason that it is important to be conscious of the statutory
scheme at the time the opening letter is received is
to realise that if the taxpayer were to simply ignore
that letter (as he is entitled to do - although it would
be fairly stupid to do so) the only thing that HMRC
could do about it is to exercise their information powers.
Very often the opening letter asks for things that are
clearly not within the scope of such powers - or at
least not within the scope of section 19A or paragraph
27; is should not be overlooked that HMRC have a number
of other information powers, such as s 20, TMA 1970,
which they are not precluded from issuing in connection
with a self-assessment enquiry and will sometimes invoke.
Section
19A will be dealt with in a subsequent article in this
series. The other enquiry powers are outside the scope
of the series. For the moment what the reader needs
to know about section 19A is that
(a)
a notice can be served only on the taxpayer, and
(b) it can require only the production of information
that is in his possession or power and which is reasonably
required for the purpose of enquiring into the tax return
under enquiry.
Armed
with knowledge of the scheme of self-assessment and
the limitations on the section 19A powers, we can return
to the opening letter from HMRC. The first thing to
notice is that it invariable contains a time limit,
normally 30 days. As the letter is not part of the statutory
scheme the Officer has unilaterally imposed this time
limit. He has no means of enforcing it. You are perfectly
entitled to ignore it if you wish. In particular he
cannot impose financial penalties if it is not complied
with. That is not to suggest that you should ignore
it, but rather that you should not let it panic you
into responding in haste before you are really ready
to reply to the letter.
Nor
is it to say the Officer has no response to unreasonable
delay. Delay (which they regard as a lack of co-operation)
is one of the factors that HMRC take into account in
determining penalties - although it should not be overlooked
that penalties can arise only if HMRC can show that
the return has been fraudulently or negligently completed,
so the threat of penalties is an empty one if the return
is correct and complete.
The
Officer cannot impose penalties under section 9A, the
provision under which he issues the enquiry notice.
This is, as it says, simply a notice that he is enquiring
into the return. It does not require either you or the
client to do anything. Incidentally check that the notice
has been issued within the one year time limit and is
valid. If you think it is invalid tell the Officer why
before he goes any further in illegally trying to mount
his enquiry.
Their
other remedy where HMRC believe you are delaying things
is to issue a section 19A notice. But so what? The taxpayer
has a right of appeal against such a notice and provided
the appropriate appeal is made within the 30 day period
HMRC's statutory powers are then suspended until the
appeal has been determined either by agreement or by
the appeal Commissioners. Much of my work is advising
accountants and solicitors. I must have advised people
to make at least a couple of hundred appeals against
section 19A notices in the eight years since self-assessment
was introduced. In only one of these cases was the appeal
listed for hearing before the Commissioners - and in
that case they set aside the notice in its entirety.
A section 19A notice is largely a paper tiger. The real
significance of a section 19A notice for the unwary
is that it will be sent to the client accompanied by
a letter stating that it has been issued because his
agent has not provided information that HMRC has requested.
Accordingly if you are prepared to risk the issue of
a section 19A notice it may be diplomatic to warn the
client that it might be issued but that it is not something
to worry about but is a calculated response to your
tactics in dealing with the enquiry.
The
preferred tactic however is to treat the Officer's time
limit as a target date and either to try to comply with
it if it is easy to do so, to explain within that time
limit that you cannot meet it and suggest an alternative
date that you consider more realistic or to provide
some of the information within that limit and explain
why you cannot immediately provide the rest.
The
next article will consider how to respond to the letter
and, indeed, how to deal generally with correspondence.
See also:
SA Enquiries 2 - Handling
Correspondence
SA
Enquiries 3 - Records
SA Enquiries 4 - Meetings
SA Enquiries 5 - Section
19A & Para 27 Notices
SA Enquiries 6 - Going to
the General Commissioners
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© Blackstone Franks
Barbican House
26 -34 Old Street
London EC1V 9QR
January 2006
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