Anne Eager, a tax specialist at advisory firm The Robert James Partnership, examines the changes in April’s Budget and explains what they mean for businesses.

In a nutshell, the new legislation not only increases HMRC’s powers to request information and obtain access to premises, but sets out those rights in statute. The pretext is to achieve greater consistency across each type of tax (income, corporation, and VAT), both in terms of penalties and how taxpayers are “policed”.

But the change creates a problem: while the powers of HMRC are statutory, those of the taxpayer are not. They exist simply in the form of guidance notes, which means that it is now more important than ever to prepare yourself carefully for the possibility of an investigation.

HMRC can give a minimum 24 hours’ notice to the taxpayer, or simply turn up and look at books and records unannounced provided they have the prior permission of a senior officer. Declining access to those so-called “real time” visits will result in a penalty.

If an inspector feels that a company’s records do not comply with HMRC’s minimum (somewhat subjective) standards, he has the right to launch a more detailed enquiry on the basis that an underpayment of tax has been likely because of poor record-keeping.

Passing the buck

These changes are all part of an ongoing shift in responsibility which began when the self-assessment regime was introduced. Once again the burden of compliance has been pushed onto the taxpayer to prove a return is correct, rather than putting the onus on HMRC to highlight a problem.

The difficulty with this change in emphasis lies both in the way tax inspectors interpret what constitutes a risk (which is very different to the man in the street) and the fact that unfortunately, HMRC’s approach can be both inconsistent and sometimes incorrect.

If you are faced with an investigation, you will normally be given at least 24 hours’ notice. Unannounced visits will not happen unless you are extremely unlucky: HMRC have asked for the power to turn up without warning in situations where they have specific cause for suspicion, but this is the exception rather than the norm.

If you have no time to arrange a tax adviser to be present, the best tactic is to be courteous and answer all the inspector’s requests. Make sure you ask to see authorisation from a senior HMRC officer, and maintain control of the situation. Offer the inspector a meeting room and fetch any information they ask for rather than allowing them to snoop through the accounts file on the office floor.

Finally, never ignore an enquiry notice and always deal with any correspondence quickly to avoid making the situation worse. Remember that with HMRC you are treated with suspicion of being guilty until you can prove you are innocent – it’s a subtle difference to our usual approach to justice but has big ramifications for those in the hot seat.