Enquiries are sometimes called "compliance checks"
HMRC has the power to open enquiries / compliance checks into a taxpayer’s return, usually within 12 months from the date of filing. If a return is filed late, HMRC has 12 months and to the end of the following quarter day to open an enquiry. The quarter days are 31 January, 30 April, 31 July and 31 October.
HMRC must issue an opening letter, which states the legislation under which the enquiry has been opened and the reasons for opening it. If no legislation is quoted in the opening letter, this may be an ‘informal’ compliance check and not within the formal enquiry framework. This means there is no legal requirement to respond, but ignoring such an informal enquiry has to be carefully considered as in some cases it may be useful to force HMRC hand to either cease at that stage or open a formal enquiry.
The opening letter usually includes an information request, but this is not compulsory and can follow in latter rounds of correspondence.
If a submitted return is eventually amended, this extends the enquiry window in relation to the amendment – unless the amendment is so significant to the return, in which case the whole return is treated as having an extended enquiry window.
HMRC can only enquire once into an accounting period or tax year for the same taxpayer, so once an enquiry is closed that tax period is treated as final. This is an important feature of the system and offers peace of mind to the taxpayer (assuming there are no Fraudulent aspects).
Enquiries are usually into either the full return or only an aspect of the return (known as “aspect enquires”).
What is a Code of Practice 8 ("COP8")?
HMRC can open a Code of Practice 8 (“COP8”) - a much more involved enquiry come investigation. This usually involved larger transactions, larger amounts of money, tax avoidance schemes and often offshore and related party transactions.
When the enquiry is complete, and the taxpayer and HMRC will have to have agreed any additional tax, interest and penalties arising. Negotiating the level of penalties is just one part of the skill set required when dealing with HMRC. The enquiry only ceases when HMRC issue a closure notice.
If HMRC and the taxpayer/agent cannot agree, there are several options open to resolve the issue including independent statutory review, appeal to the Tax Tribunal and mediation (‘alternative dispute resolution’), depending upon the details of each case.
What is a Code of Practice 9 ("COP9")?
In more serious cases, HMRC can open a Code of Practice 9 (“COP9 “). This is reserved for cases of suspected fraud. Such an enquiry typically suggest or may allege criminal behaviour. In such cases it is strongly recommend that a taxpayer seek specialist tax investigations support, from a professional firm such as Samuels LLP. This will include the assistance of our criminal lawyers. We consider this very serious issue later in a more detailed blog dedicated to COP9s.
We are here to help, and hand hold you through the minefield that can be created by such letters, especially if a taxpayers have been less than accurate in their tax return disclosures. Any discussions and clarifications are strictly confidential.
If you have an enquiry and in particular a COP8 or COP9 enquiry, you must seek professional guidance. We at Samuels LLP have the skills and experience, gained over the past 30 years to be able to help and guide. There is no need to panic, but great care must be taken at each step in dealing with HMRC in such circumstances.
For more information, Book a Free Consultation with us.
