Working the enquiry: meetings: the correct approach to meetings
When on any face to face meetings or visits, you must always identify yourself on arrival.
Generally speaking in the meeting you should draw the taxpayer’s attention to any clear errors you have established from any records you have already examined. You should also discuss any more general areas of concern which should normally include the risks that have been identified.
Unless you are reasonably certain that there have been understatements or omissions, and often it will not be possible for you to be certain at this stage, you should ask the taxpayer in a neutral way whether there is anything further that they wish to tell you. You need to make it clear that you are not making any allegations at this point, only trying to establish all the relevant facts.
Above all, never in any circumstances use words or phrases which could be construed by the taxpayer as a threat.
Throughout the meeting keep in mind
- your objectives from when you planned the meeting, see EM2020, and not to be steered away from them. There will be occasions when it is useful to let the taxpayer talk at length, but you will need to ensure they stay focused on the matters under consideration.
- that you have asked for the meeting, and you are responsible for achieving your objectives in a reasonable amount of time.
- that it will be costly for the taxpayer especially if accompanied by an agent. However, you should not be deterred by this, the cost will be much more if the enquiry drags on, especially if there has to be a further meeting to obtain information which could all be obtained at a single meeting.
How should I conduct the meeting?
Once you start asking questions about the business, further information may arise, especially about the record keeping. Your aim should be to test fully the credibility of the taxable business profits and other entries on the return, by reference to the risk assessment in the SIP, the records review, and what emerges at the meeting.
Direct questioning may be needed on matters such as personal expenditure, but you should ask `open’ rather than `closed’ questions and allow the taxpayer to reply fully without interruption.
When should I give the taxpayer the opportunity to make a disclosure?
It is important, if evidence of irregularities do emerge, to give the taxpayer an opportunity to make a full disclosure and, in appropriate cases, to agree what is needed to quantify the irregularities. You will also need to consider for how long these irregularities have occurred and the behaviour that caused them. When you have an evidence based reason to believe that something is wrong that may result in a penalty, you must make sure that you tell them about their rights under Article 6 of the ECHR, see CH300000+.
What do I do when the taxpayer makes a disclosure?
You should then ask them for a full explanation of the way the understatement arose and the amounts involved. Allow the taxpayer to talk freely, as far as possible.
Where possible, establish there and then the nature and extent of the omissions or inaccuracies. For example for business customers, were the omissions a particular type of receipt, regular cash extractions, payments from certain customers, or the inflation or creation of false expenses?
If what the taxpayer tells you confirms your suspicions you may be able to quantify the understatement and agree the profits there and then you should consider the likely size of the adjustments and whether back years, see EM1840, interest and penalties will be involved.
(This content has been withheld because of exemptions in the Freedom of Information Act 2000)
What do I do when I believe that something is wrong but no disclosure is made by the taxpayer?
Where you hold information suggesting that the returns are inaccurate, if the taxpayer denies this, you should normally disclose the information you hold provided it is not from a source that you cannot or it would not be appropriate to disclose, see EM1895.
In enquiries where one of the risks identified is the overall capital position or, where other more specific risks have been identified, you should say so. But do not give the taxpayer any indication of the amounts which need to be explained, see EM1838.
If the taxpayer denies irregularities and there are other risks attached to the returns, you should ask the taxpayer to provide all the relevant information or documents that will help you to address the risks or corroborate any explanations that are given by the taxpayer. You may need to use information powers, if you have not already done so, see CH23500.
How and when do I begin to consider penalties?
In general, bringing the tax, NIC’s and penalties into charge depends on being able to demonstrate that there has been fraudulent/negligent or deliberate/careless behaviour. An important part of a meeting involves considering culpability generally and the consequences for the taxpayer.
Remember that, where penalties are concerned, the onus of proof falls upon HMRC to demonstrate that they are liable to penalties. You must therefore have sufficient evidence that may need to be presented to a tribunal, to support culpability in general and the behaviour that is relevant to the penalty. If you need to gather any additional evidence, you should explain clearly what you need to know and why.
Once you have sufficient evidence, depending on what stage you are at in your enquiry, you should establish culpability by explaining to the taxpayer what facts and evidence support your view. The discussion of culpability must be recorded in the meeting notes and identified in any reports that you need to make to your manager or authorising officer.
If culpability is accepted by the taxpayer, you should explain the general consequences in terms of tax, NIC, interest and penalties, even if you are not able to quantify the amounts involved or reach an agreed settlement at the meeting.
What do I do if the taxpayer disputes culpability?
If the taxpayer does not agree with your proposed basis for settlement, you should continue to try and resolve any disputes with the taxpayer, and gather any further evidence that may be required. If you cannot reach agreement you will probably have to proceed by issuing amendments/assessments with your manager’s approval, where the dispute cannot be resolved. Whether and when to continue with your enquiry should be determined by the Litigation and Settlement Strategy, see CH40000.
If the taxpayer disputes the level of culpability alleged, but is prepared to settle by contract settlement and make an offer equal to, your basis for settlement, you can suggest that they make the offer by reference to the HMRC allegation without admitting any failure in the letter of offer. If they agree, you can amend the wording of the letter of offer, see EM6338.