Amendments made to Finance Bill clauses on HMRC inspection powers

Monday 16 June 2008

The Budget 2008 announced that the inspection powers available to HM Revenue and Customs (HMRC) were being reformed. What changes are being made and how has the Government responded to representations concerning these new rules?

What changes are being made to HMRC's inspection powers?

The Budget 2008 announced that changes were being made to the legislation that allows HMRC to check that individuals and businesses are paying the correct amount of income tax, capital gains tax, corporation tax, VAT and PAYE. These changes, which are due to come into effect from 1 April 2009, will give HMRC increased powers of inspection into taxpayers' affairs, including the ability to enter and search business premises. Following the announcement, representations were made to the Government in an attempt to limit the wide ranging scope of the new powers.

What changes have been made to the Finance Bill?

Following the lobbying, Jane Kennedy, Financial Secretary to the Treasury, proposed some changes to the Finance Bill Schedule on powers. These proposed amendments were debated on 10 June 2008 in the Public Bill Committee stage, with the effect that the following key changes have been made:

Inspecting business premises

As originally drafted, the new rules would have allowed HMRC officers to enter and inspect any business premises for the purpose of checking any person's tax position. This has now been limited to the premises used by the person whose liability is being checked (with the exception of premises used in connection with the taxable supply of goods, in order to help HMRC combat certain VAT frauds). In addition, the inspection powers are limited so that HMRC officers may not enter or inspect any part of the premises that is used solely as a dwelling.

Prior notice for inspections of business premises

One of the areas that caused the most controversy when the draft legislation was introduced was the new rule allowing HMRC to enter and inspect a taxpayer's business premises with only 24 hours notice being given. This has now been increased to 7 days notice.

A shorter notice period (or no notice at all) may apply where this is agreed with the occupier or it is approved by an authorised officer of HMRC (authorised by a Commissioner of HMRC). This is unchanged from the original draft legislation.

Francesca Lagerberg, Head of the National Tax Office at Grant Thornton says: "There are some welcome improvements here to safeguard taxpayers' rights. However, these changes still do not provide all that has been asked for and there will be guidance and Codes of Practice to ensure HMRC use these powers proportionately."

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