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Myths about HMRC's powers means it often overreaches during inspections, experts warn.

HMRC can open documents that are visible but cannot search for them

Common myths about the extent of HMRC’s powers during an inspection means it is often able to overreach, accountants and tax advisors were warned at PfP’s annual Tax Investigations Conference in London on October 11 2019. At the Conference, John Cassidy, Partner at Crowe UK, warned these myths need to be debunked to avoid HMRC finding evidence that it should not have been allowed to. HMRC uses inspections as means to gather the evidence needed for its investigations.

HMRC will look to push the limits of its powers and inspectors will often use ‘force of personality’ to get what they want. It is therefore important that accountants make sure clients are aware of the limits on HMRC’s powers; this includes:

1. Myth: HMRC can search for documents during an inspection 
When making an inspection, HMRC can touch and open documents that are visible but cannot actually search for something that is not visible. The broad rule that businesses need to know is “inspect is by eye and search is by hand”.

HMRC also cannot copy documents, remove documents or enter vehicles on the premises.

2. Myth: HMRC can inspect any document it wants
Certain documents cannot be inspected; for example, this includes documents that are older than six years, documents with legal privilege and tax advice documents.

3. Myth: HMRC can enter the premises when making an unannounced visit
HMRC cannot make a forced entry and entry can be refused. If this happens, then HMRC must withdraw immediately. It is worth bearing in mind that this could in a fine if a tribunal rules that entry should have been allowed, although this is unlikely. However, HMRC can make a forced entry when conducting a raid.

4. Myth: HMRC can require a business to add up sales revenues
During an inspection, HMRC can inspect assets on the premises which includes cash. However, HMRC has no power to require a business to ‘cash up’ during an inspection – this means adding up the cash generated during a trading period.

PfP adds that if HMRC decides to visit a business and do an inspection, there are steps management can take to reduce its impact. For example: inviting inspectors into a private room away from staff and documents; check the inspection notice has been signed by an authorized officer; and call their accountant immediately.

Kevin Igoe, Managing Director at PfP, says: “HMRC will look to push the envelope where it can so it’s crucial advisors make sure their clients are aware of their rights.”

“These myths means that businesses could find themselves handing over documents and assets that they didn’t need to do. This can result in problems if HMRC then uses what it finds to launch a full blown investigation.”

Kevin Igoe, Managing Director at PfP, spoke at the Conference alongside key executives from Crowe UK, RSM and Blick Rothenberg. HMRC addressed attendees over the benefits of using its Alternative Dispute Resolution service.

The Conference was attended by over 200 accountancy and tax professionals.