In 2008 HMRC embarked on the biggest change in its compliance powers for over a decade, which involved strengthening its powers and updating the various penalties it could charge, particularly for incorrect tax returns and late payments.

New legislation extended HMRC's powers in relation to enquiries into individual and company tax returns respectively, including the ability to undertake enquiries in real time (prior to a return even being issued for that year) in order to check the taxpayer's position.

Generally, if a return has been submitted and HMRC wishes to carry out an enquiry, then the law indicates that it should issue a formal enquiry notice. However HMRC is increasingly making 'informal' enquiries. Not simply enquiring about transcription errors, HMRC can issue several pages of detailed questions about a tax return or entries upon it.

Some taxpayers will welcome the opportunity to clarify points without the need for a formal enquiry, but care does need to be taken. There are a number of checks and balances provided for formal enquiries, for example:

  • the taxpayer can request a closure notice from the First-tier Tribunal and this will be granted unless HMRC is able to justify continuing the enquiry
  • once an enquiry has been closed, HMRC cannot recommence enquiries provided full disclosure has been made.

These safeguards don't apply in the case of informal enquiries although there may still be advantages to the taxpayer, for example:

  • dealing with an informal enquiry may be cheaper and less stressful than a formal enquiry
  • the inspector may appreciate the opportunity not to have to go through the rigmarole of a formal enquiry and so may be more inclined to arrive at a satisfactory resolution.

It is essential that any approach from HMRC is dealt with professionally, in good time and co operatively. 'Informal' requests for information, enquiries into submitted tax returns and requests to participate in meetings to discuss similar matters should be dealt with as carefully as a formal HMRC enquiry.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.