HOW TO SURVIVE THE NEW HMRC PENALTY REGIME

There has been a lot of hype surrounding the adjustments made to HMRC's penalty regime, which came into play on 1st April 2009, affecting all tax payers. It would be easy to presume that HMRC have almost limitless powers. However it's worth remembering that (regardless of any Taxpayers' Charter) there are limits on what HMRC can and can't do.

Documents
Essentially, HMRC's rights to obtain documentation remain broadly in line with what those of the previous regime, and as follows:

• Where a tax return has been submitted, an enquiry notice must be issued BEFORE an Information Notice is issued (para 21)
• The documents must be in that person's possession or power (para 18)
• Material relating to appeals, personal records etc are restricted (para 19)
• Documents over six years old can only be requested by or with the agreement of an 'authorised officer'
• Information Notices cannot be issued more than four years after a person's death (para 22) and
• Legal professional privilege, auditors papers and tax adviser's 'relevant communications' (para 23, 24 & 25 respectively) continue to be restricted as they are now.

Notices and Rights of Appeal
If you receive a notice from HMRC, it is important that you understand the type of notice that you have been issued and its implications. There is for example no right of appeal against a notice from a First Tier Tribunal, nor can you appeal against a request for statutory business records. HMRC do not look favourably on challenges to non-appealable notices.

Conduct of the Enquiry
There is no grandfathering of the old powers and so technically the new powers can be applied to any existing and unsettled enquiries. These new powers include the right to obtain information and documents from 3rd parties. Typically HMRC would seek agreement until now to use a mandate to approach 3rd parties. They won't have to do so in future.

However, HMRC officers have been directed not to utilise these enhanced powers on enquiries dated pre 1st April 2009, or which related to the identification of risk prior to that date. They are not so constrained however for new risks identifies after 1st April 2009 and it is therefore potentially important for your adviser to know what prompted the original enquiry. The worry must be that HMRC frontline troops may be a bit liberal in determining when they identified a 'new risk'. This will depend upon how forthcoming the officer has been until now with his or her concerns in the case and this will vary.

Application of Penalties
A penalty is a fine by another name. It is vital to remember that any penalty applied depends upon the statutory filing date of the document. A statutory filing date ending prior 31st March 2009 will attract a penalty under the old regime whereas a statutory filing date from 1st April 2009 onwards will attract one of the new (probably) higher penalties.

Penalty Suspension
Do not however forget the suspended penalties under the new rules. Experienced advisers will normally have tried to broker some mitigation of any penalty under the old rules. (If you don't ask you don't get). Under the new rules, penalties are more rigidly defined but, it is possible to ask to have a penalty suspended. This new approach to penalties is to try to coerce taxpayers to better comply with their obligations by using a carrot and stick approach. If the penalty is suspended your tax compliance will be monitored over the following two years to ensure you have corrected your errors. If you do the penalty will be scrapped, if you do not the penalty will be applied. There is a real cash flow benefit to asking for penalty to be suspended and you need to make sure your adviser is not reluctant to ask.

What Should You Do If Hit With An Enquiry?
The sensible answer to this question would be to talk to your usual Campbell Dallas partner. This is a specialised area.

Who to Contact
For further information or advice please contact Bruce Wilson or Aileen Scott on 0141 887 4141.