Compliance checks: an overview for agents and advisers
Find out about compliance checks for the main areas of tax and benefits that you may be handling for your clients.
HM Revenue & Customs (HMRC) has a responsibility to ensure that individuals and businesses are paying the correct amount of tax or claiming the right amount of any HMRC benefits, for example tax credits.
HMRC needs to make sure that everyone meets their responsibilities so they carry out compliance checks - sometimes referred to as enquiries, investigations, inspections or assurance visits.
In general terms, HMRC carries out compliance checks to make sure a specific tax return or claim is correct and/or to check that any payments are for the right amount and are made on time. Another reason for a check is to discourage evasion and make sure the tax system is operating fairly, so some checks are made on a random basis. Starting a compliance check does not necessarily mean that HMRC believes there are any serious problems, many checks are routine.
Overview of compliance checks
HMRC believes that most of their customers are honest and aim to treat them all with respect.
Generally something will have triggered a check. For example, when figures entered on a return appear to be wrong. Another example is when a very small business suddenly makes a very large claim for VAT, or one with a large turnover declares a very small amount of tax. The only way HMRC can find out whether the return is correct is by carrying out a check.
If the check shows that there is nothing wrong, HMRC will bring it quickly to an end. If the check shows that something is wrong, HMRC will work with you and your client to put things right. If any tax has been overpaid, it will be repaid with any interest that is due. But interest may be charged on tax that is underpaid.
HMRC may also issue an assessment or amend the relevant return, depending on the type of tax involved, to collect any unpaid tax. In some instances, an error that relates to one tax will mean that another tax also has to be corrected. For example an error in charging excise duty on goods sold generally means the VAT charged on the sale may also be wrong.
You can ask for a review of, or appeal against, most of HMRC’s decisions on your client’s behalf. The decision notice issued by HMRC explains what you can appeal and what you can’t.
Working with clients and HMRC during a check
If you are already authorised to act for your client, you can continue to represent them during the course of the check. HMRC will be able to deal with you direct - provided your authorisation covers all the matters that are being checked. You may also be asked by a potential new client to represent them if HMRC has started a check into their tax affairs. Whatever the circumstances, the legal responsibility for correctly making returns and payments remains with your client so it’s also a good idea to have your responsibilities agreed in writing with your clients in a formal engagement letter.
Compliance checks should be viewed on a case-by-case basis. Some checks may take considerable time and some, by their nature, will be more detailed than others. You may wish to consider offering clients insurance against professional costs incurred as a result of a compliance check, or to refer clients to specialists in this field. Whatever you and your client decide, the appropriate authority must be in place before HMRC can deal with you direct. Follow the link below to find out more about this.
Handling a check efficiently and quickly is in everyone’s interests - yours, your client’s and HMRC’s. However, how much you co-operate with HMRC is at yours and your client’s discretion. Bear in mind that if the check results in a penalty, HMRC will consider how much co-operation was given when deciding if the penalty can be reduced. In general, the more help HMRC receives, the lower the penalty will be.
New compliance checks
The following table shows the date when the new information and inspection powers came into effect for the main tax and duties.
Please also note that these powers also apply to Bank Payroll Tax from 31 August 2010 and limited provisions apply to Excise from 1 April 2011.
New information and inspection powers commencement dates
|From 1 April 2009||From 1 April 2010|
|Capital Gains Tax||Aggregates Levy|
|Corporation Tax||Climate Change Levy|
|Construction Industry Scheme (CIS)||Inheritance Tax|
|Income Tax||Insurance Premium Tax|
|Pay As You Earn (PAYE) including National Insurance contributions||Landfill Tax|
|VAT||Petroleum Revenue Tax|
|Stamp Duty Land Tax|
|Stamp Duty Reserve Tax|
The new compliance checks legislation makes a number of key changes for these taxes and duties including:
- a single set of powers for HMRC when carrying out checks to: visit and inspect premises, assets and records and to ask clients and third parties for information and documents
- safeguards for HMRC customers
- common time limits for raising assessments and making claims
HMRC has published a series of factsheets to explain step-by-step how the new compliance checks framework works. During a check, an HMRC officer may give your client one or more of these factsheets to help them understand what is happening and what their rights are.
If you wish to check technical and operational guidance on the new systems, you can use the HMRC Compliance Handbook. This is written for HMRC staff, but it will show you how the new processes work and will continue to be updated as the legislation changes.
You may also wish to work through the HMRC staff online learning modules.
Tax credits checks
HMRC may make compliance checks into any tax credits claims made by your clients to make sure the right amounts are being paid. If you’re already authorised to handle tax credits claims for your clients, you can represent them during a compliance check on tax credits. HMRC will, however, send any initial contact letter about the check to your client only.
You can find detailed information about tax credits checks in the Tax Credits Claimant Compliance Manual. While this is written mainly for HMRC staff, it will show you how the compliance check process works and what HMRC will be looking to find out.
HMRC’s criminal investigation policy
It is HMRC’s policy to deal with fraud by using civil investigation procedures, wherever appropriate. Criminal investigation is reserved for cases where HMRC needs to send a strong deterrent message or where the conduct involved is such that only a criminal sanction is appropriate.
Find out more about HMRC’s criminal investigation policy by following the link below.