Mark McLaughlin points out that treating taxpayers in accordance with ‘Your Charter’ is not an option for HM Revenue & Customs, including in tax return enquiries.
Individuals whose tax returns are subject to an enquiry by HM Revenue and Customs (HMRC) will often be in unfamiliar (and uncomfortable) territory.
There is a legal framework within which HMRC can open and close an enquiry. However, there is relatively little legislation dealing with the conduct of the enquiry itself. HMRC guidance is given in its Enquiry manual, and in explanatory leaflets (links to HMRC factsheets on compliance checks can be found at www.gov.uk/government/collections/hm-revenue-and-customs-leaflets-factsheets-and-booklets#compliance-checks-factsheets-general-information). However, it must be remembered that such guidance does not carry the force of law.
‘Your Charter’ to the rescue?
HMRC has a Charter for taxpayers (‘Your Charter’), which sets out taxpayer rights and obligations. The Charter applies to HMRC's interactions with taxpayers generally, so it should be borne in mind during tax return enquiries, which is the theme of this article.
The Charter has a basis in statute. This has been the case since 21 July 2009, when the Commissioners for Revenue and Customs Act 2005, s 16A (‘Charter of standards and values’) was introduced. This legislation requires a Charter; it states: “the Charter must include standards of behaviour and values to which [HMRC] will aspire when dealing with people in the exercise of their functions.” Furthermore, the Commissioners for HMRC must regularly review the Charter, and amend or revise the Charter where it is considered necessary (CRCA 2005, s 16A(2), (3)).
Guidance on the Charter in HMRC’s Enquiry manual instructs its officers as follows: “You must always make customers aware of their rights and obligations at the appropriate stage of the enquiry.”
In the context of tax return enquiries, HMRC officers generally seem conscientious in terms of giving taxpayers copies of relevant (albeit non-statutory) factsheets or booklets at appropriate stages of the enquiry, but have not always been so forthcoming about making taxpayers aware of their rights under the Charter (which, as mentioned, is statutory). So what are those rights?
Know your rights!
‘Your Charter’ (which can be downloaded from the Government’s website at www.gov.uk/government/uploads/system/uploads/attachment_data/file/91888/charter.pdf) broadly comprises nine taxpayer rights. It also contains three obligations (i.e. what HMRC expects from taxpayers); namely to be honest, respect HMRC staff and take care to get things right. The remainder of this article focuses on taxpayer rights, as opposed to obligations.
The nine taxpayer rights (i.e. what the taxpayer can expect from HMRC) are reproduced below.
“1. Respect you
2. Help and support you to get things right
3. Treat you as honest
4. Treat you even-handedly
5. Be professional and act with integrity
6. Tackle people who deliberately break the rules and challenge those who bend the rules
7. Protect your information and respect your privacy
8. Accept that someone else can represent you
9. Do all we can to keep the cost of dealing with us as low as possible."
Pausing there for a moment, is taxpayer right 6 above really a ‘right’? Or is it actually a statement of intent by HMRC? It is arguable that there are only eight rights, as opposed to nine.
Some rights are probably more relevant than others when it comes to an HMRC enquiry into an individual's tax return.
Respect you…be professional and act with integrity
The vast majority of HMRC officers are courteous and professional. A very small minority are arguably not (although to be fair, the same could probably be said of some tax agents).
It is not beyond the realms of possibility to encounter an aggressive and confrontational officer who does not keep to HMRC's guidelines. It may therefore be necessary to remind that HMRC officer about taxpayer rights 1 and 5 above, and for the taxpayer or agent to complain about any unacceptable behaviour (see ‘Practical Tip below).
HMRC states in relation to taxpayer right 5 above: “We will…respond to your queries and resolve any problems as soon as we can.” In an enquiry, the HMRC officer will often request information or a reply to correspondence within a certain timeframe, most commonly 30 days. However, in practice HMRC is not always as punctual in replying to correspondence with the taxpayer. Taxpayer right 5 is arguably justification to expect the HMRC officer to deal with correspondence during an enquiry in a similar timeframe to those set for the taxpayer.
Treat you as honest
Taxpayer right 3 states: “Unless we have a good reason not to, we will presume that you are telling us the truth.” Upon the opening of a tax return enquiry, a presumption of honesty should therefore be the starting point (unless HMRC holds information to the contrary, in which case they would normally say so).
However, in practice where (for example) the tax return enquiry involves HMRC scrutinising the accounts of a cash based business (e.g. a market trader or takeaway food outlet), the taxpayer may be forgiven for thinking that the tactics sometimes deployed by HMRC, such as in attempting to ‘break the records’ and conducting business economics exercises for the purpose of detecting undeclared sales, suggests an approach rather different from a presumption of honesty. If an HMRC officer appears to be over-zealous, a reminder about this taxpayer right may be worth considering.
The Charter also states that HMRC will “explain why we need to ask you questions and why we have decided to check your records.” Thus if an HMRC officer is coy about why an enquiry has been opened, or about the direction being taken during an enquiry, drawing attention to this Charter statement may help to elicit further information from them.
Taxpayer right 3 states that HMRC will “only question what you tell us if we have good reason to.”
When a particular line of enquiry does not yield results in terms of finding an error in the tax return, some HMRC officers may move on to a different area of the return, and possibly seek to repeat this process. Such a ‘fishing expedition’ (i.e. investigating a tax return without having any reason to suspect that it is wrong) does not sit comfortably with the taxpayer’s right to be treated as honest in the author’s view.
Do all we can to keep the cost of dealing with us as low as possible
HMRC states in taxpayer right 9: “We aim to take up as little of your time and money as we can.”
However, in practice this is not always the case, at least in the context of tax return enquiries.
For example, HMRC officers will often request meetings with taxpayers in an enquiry, sometimes routinely and in its early stages. However, attending a meeting can have significant cost implications for taxpayers. Meetings can be particularly expensive for the self-employed, where the individual’s income is directly related to the services they provide (e.g. hairdressers, information technology specialists, consultants, etc.), in terms of lost income resulting from attendance at a meeting. Taxpayers with advisers accompanying them at a meeting requested by HMRC will also be faced with professional fees for their adviser’s attendance at the meeting.
That is not to say that meetings should be avoided. Meetings can be productive in the right circumstances, and could possibly save time in the long run. However, if there is an unwarranted cost implication, this should be pointed out to the HMRC officer.
Practical Tip:
‘Your Charter’ does not relate specifically to enquiries – it is meant to cover HMRC’s standards of behaviour and values generally. However, HMRC should adhere to your rights in the Charter during an enquiry – so remind them if necessary.
Taxpayers and advisers who still feel that they have a genuine grievance about the way in which HMRC has handled an enquiry should not be afraid to make a complaint. General guidance on making complaints can be found in HMRC’s factsheet ‘Complaints’ (see:
