Interventions: education and due diligence: end users: co-operation principle
Obtaining and applying cooperation principle when working with end users
It is important that you prepare for any initial contact to explain why you want to visit the end user. Initial contact or discussions with the end user should highlight the benefits of cooperation, i.e. to create a level playing field and deter non-compliance in the Labour Provider (LP) population. The potential reputational damage should also be explained. If the end user is unwittingly involved in a supply chain with a non-compliant LP this may have an indirect impact if the LP is prosecuted or a published defaulter. There is also a risk that the end user may be liable for tax loss in the supply chain. You should also explain that as this is not a formal enquiry, any information provided is done so on a purely voluntary basis and you will keep the timescales as short as possible.
Examples of risks relating to potential poor LP compliance (LPOG7300)
It should be made quite clear when conducting an end user visit that HMRC are working together with end users to encourage compliance across the LP population. It is still important that a record of discussions, agreement and information gathered is recorded. A record of notes of meetings should be maintained and issued where appropriate. It is standard practice to issue and explain the HMRC due diligence leaflet (PDF 315KB) to end users.
The initial contact with the end user should explain why an educational type intervention would be useful for both HMRC and the end user. This is clearly outlined in the opening letter (Word 255KB). Whilst the core contents of the letter should be retained there is scope to insert specific requirements to suit the trades you are looking at.
An appointment can be arranged by letter or by telephone contact. This is optional to suit the type of business involved but it is good practice to issue a confirmation letter and also the LP due diligence leaflet (PDF 315KB).
If you are unable to gain cooperation there is an option to invoke statutory powers if appropriate. It may be that the end user is knowingly involved in a fraudulent supply chain.
The use of mandatory information and inspection powers can be applied if it is considered necessary for the protection of the revenue under Schedule 36 of the Finance Act 2008. This should only be considered when other approaches fail.
HMRC officers have the power to demand the production of records to check a taxpayer’s tax position, as long as the demand is given in writing to the taxpayer. Separate provisions also allow an officer to copy computer records.
You can apply the above appointment letter plus requirement for records and conduct a hot audit specifically aimed at looking at the supply chain in the business and obtain details as before. This can instigate part of a general cross tax intervention looking at both direct and indirect tax risks in a supply chain.