It is true to say HMRC are showing a fair amount of understanding in these difficult times. They have been asked to put together mechanisms to allow furlough payments and business grants to be claimed. However, it is not surprising that given the time frames the system has not been flexible enough to deal with every eventuality.
Many businesses may be lulled into a fall sense of security. From 3 April HMRC stated it would offer to suspend existing enquiries and refrain from launching any new enquiries. We should however, not forget that pre lockdown there were announcements of more HMRC resources to tackle non-compliance.
It is safe to say they will still be stretched for resources even after life resumes to whatever “normal” looks like. Whilst still performing a duty of care to clients it should be borne in mind patience is a two-way street.
Furlough payments in general seem to have been relatively easy to obtain. However, mistakes will be made and amounts will need to be paid back. Agents may find themselves in the position of advising reluctant cash strapped clients to voluntarily repay amounts, or else cease acting for the client and making a money laundering report.
The Treasury is being forecast to have extra borrowing in excess of £300bn. It is inconceivable they will not wish to check a proportion of these payments to ensure taxpayers money has been correctly claimed. Has it been correctly claimed? Were any employees made to work?
There has been no mention of penalties and interest – or how HMRC will deal with claims they feel will be fraudulent. What will they consider to be a “deliberate” action or omission? They have even set up a whistle blowers’ facility for employees to call if they feel their employer has not acted accordingly. So far around 800 employees have come forward. With the public mood being whipped up against false claims we can expect a fairly hard attitude and a number of prosecutions.
It is not yet clear if HMRC will investigate through PAYE compliance checks or as part of specialist task forces or a mixture of both but we will surely soon find out. An early deterrent against those who over claim must be in HMRC’s best interests. We do know that HMRC staff from several different departments are being trained to check the claims (including Fraud Investigations Service) which would suggest different approaches depending upon their risk assessment of underpayments. Interest and penalties can be expected and we can also expect to see a number of criminal prosecutions taking place.
Self Employed Income Support Scheme (SEISS)
Unlike furlough payments, an agent is not permitted to make the claim under SEISS on their clients’ behalf. There is a question over eligibility to make a claim. For example, it would appear one of the criteria is that your business is adversely affected by the crisis. Various examples are given such as if there is a downturn in business or you have had to furlough staff. However, it is unclear how they will subsequently check as to how the criteria has been met. Will they look at the returns covering this period and if profits have increased ask for a refund? What if a subsequent investigation into a business that has been affected results in an increase in profits?
Any system that excludes the involvement of agents will surely be prone to error.
Other Compliance Checks
The level of new enquiries from HMRC has fallen drastically but not completely. We would expect the numbers to increase dramatically after a short lull. They may be different in nature, with less meetings and less checks at the business premises (how do you check photo ID of someone wearing a face mask?). This is nothing new, so called desk based checks have been increasingly common for some time and many practitioners have found it increasingly difficult to get a meeting.
These are trends that will merely continue. The risk assessment for those returns already submitted will at least in part already have been carried out. If they hold information before the enquiry window closes the taxpayer needs to receive the enquiry notice in time. It will be worth asking if enquiries are raised after the enquiry window has closed exactly when the information held by HMRC came into their possession.
We have additionally seen a number of new COP 9 enquiries started in recent weeks. It would seem not all staff have been redeployed to investigate the furlough scheme.
Should I accept HMRC’s offer of a suspension?
What should we do in enquiries where a suspension has been offered? There are two schools of thought. One is that we accept the suspension and wait for HMRC to come back to us. Depending upon how long ago the period under enquiry is there may be some benefit if years of assessment are falling out of date. If it is a more recent year with plenty of time to go this may not be relevant but then you never know what may come out further down the line.
The other school of thought is to refuse the offer of suspension. Let’s face it, most clients do not enjoy the experience of being investigated by HMRC and may well want it over as soon as possible.
Will HMRC be so stretched for resource they are likely to want to reach settlements (and tax payments) and not fight on for so long? There is no mention of interest abatement if we agree to a suspension. I would stress here we are not suggesting anyone is going to “get away” with anything but reaching the “right amount of tax” position sooner.
All in all, there is a decision to be made. It cannot be a good thing to allow HMRC to suspend without limit, to allow them simply to pick off the cases as their own time frames permit whist taxpayers endure never ending stress and ever accruing interest. Ultimately this must be a decision for the client after hearing the pros and cons.
In a nutshell…..
Due to the unprecedented speed in which things are moving, it is important all parties remain aware of the issues and are flexible and understanding in their approach.