Is that the tax inspector at the door?

OWNER/managers who claim expenses for using their house as an office could face a visit from the tax man as of April 1.

New HM Revenue & Customs (HMRC) powers means that tax inspectors will have the right to enter homes to inspect business records.

The new rules include visits to any business premises. Moreover, if an inspection is approved by an authorised officer no advance notice need be given.

Other changes included in the overhaul of powers means that HMRC will also be able to request information relating to transactions to assess the likely ‘tax position’ of an individual.

This includes past, present or future tax liabilities, which means notices enquiring into a transaction in advance of submitting a relevant tax return are now clearly within the scope of HMRC’s statutory powers whereas only historical transactions were enquired into after the submission of tax returns.

These new notices should be expected in relation to any transactions that HMRC considers might constitute a tax liability and specifically ‘tax avoidance’.

Ronnie Pannu, head of tax investigations at PricewaterhouseCoopers (PwC) in the North, said that no one can afford to stick their head in the sand and think that the changes won’t impact them.

“All taxpayers need to understand how HMRC’s new powers will affect them and review how they keep records of their tax affairs from now on, so if HMRC were to come knocking at their door next Thursday, they’d be ready.”

He said that other key changes included more co-ordinated working from HMRC across corporation tax, VAT and PAYE because HMRC information powers will be the same for these taxes.

Appeals against notices will also be much more difficult under the new regime and thatHMRC has an absolute right of access to statutory records.

The new powers make it easier for HMRC to carry out systems audits. Taxpayers will be obliged to provide reasonable assistance to HMRC when looking at computer records for the purpose of checking a tax position.

HMRC will use its new powers to charge penalties in relation to any tax position which gets adjusted where the taxpayer cannot show that reasonable care was taken in making the return.

There are now statutory bandings for penalties and much of the discretion currently exercised by HMRC not to charge penalties (or to charge low penalties) has been removed.

The new penalty regime for corporation tax, VAT and PAYE applies to return periods starting after 31 March 2008 where the filing date is after 31 March 2009. Other taxes will be affected from 1 April 2010.

And more changes are expected to be announced in the next budget such as penalties for late filing, compliance checks regime for the ‘other’ taxes, interest on overdue taxes and payments, repayments and debt.

Mr Pannu continued: “While most of the proposals are sensible enough, there is still some room for improvement.

“For example proposals on payments, repayments and debt seem to be all about HMRC’s collection of money and ignore speeding up repayments. Penalties for late filing, while reasonable on the surface, need capping as they add up too quickly to significant amounts.”

The accounting firm is running a seminar at its Sheffield office on April 1 at 8am to discuss the new HMRC powers and what they mean to businesses.

To book a place please contact Laura Baldock on 0113 289 4200.