HM Revenue & Customs’ extension of power

Spot-checks for companies and self-employed people who run their businesses from home

From April 2009 tax inspectors will be able to carry out spot-checks on all companies and self-employed people who run their businesses from home. Landlords, online traders and other people who work from home could find the taxman turning up on their doorstep unannounced demanding their records, as the government seeks a big increase in the Revenue’s powers.

Inspectors under the new scheme will be permitted to visit businesses with no warning to ‘inspect records, assets and premises.’ At present, HM Revenue & Customs’ (HMRC) must open an inquiry into a company and then give 24 hours’ notice of a visit. However, VAT officials will lose the power to turn up at people’s homes without notice.

Under the current rules, tax inspectors usually have to provide evidence of criminal activity and seek permission from a judge to carry out unannounced spot checks.

From April next year, new powers will give HMRC the right to visit business premises to demand access to records without warning. That could include your home if that is where you work.

Among proposals are new powers to enable the taxman to obtain information more easily from third parties such as banks and building societies.

During last year’s crackdown on offshore accounts HMRC managed to obtain details of 400,000 accounts, but only after court action forced the banks to cough up. It wants extra powers to force outside agencies to hand over details at will. How this will work has yet to be finalised.

At the moment you can be fined up to 100 per cent of the unpaid tax for an incorrect return, but discounts for cooperation and disclosure cut fines to nothing for many people.

New powers announced

• Powers to turn up unannounced at business premises, including homes.
• Tough penalties for failure to allow an inspection.
• Banks, building societies and other third parties to be forced to hand over customer records.
• Single penalty regime for all taxes, including inheritance tax.
• Taxpayers could be fined for carelessness even if their accountant made the mistake.
• People will be able to pay their tax bill by credit card.

This extension of HMRC’s power comes as it also prepares to address the issue of tax loopholes in the coming year. The Treasury claims that the crackdown, which it calls ‘protecting tax revenue.’ will raise £660m in revenue next year alone.

A spokeswoman for HMRC said: ‘The aim of the Powers Review is to align and modernise the powers and taxpayer safeguards that HMRC inherited from Customs & Excise and the Inland Revenue. The intention is to provide greater consistency and alignment of our access to records and information.’

In an unusual move, the Treasury has backdated one of the tax amendments to 1987, meaning that companies or individuals who have taken advantage of tax-planning measures since then could be hit with a hefty tax bill in the coming months.

Any companies or individuals who have used trusts to take advantage of double taxation treaties to minimise their tax bills could be affected. The HMRC spokeswoman said: ‘There has been highly aggressive avoidance with the clear intent of frustrating [the] previous legislation, hence the clarification.’

The other measures include tightening special stamp duty exemptions for those who take out Sharia mortgages, stopping people from setting up loss-making businesses to minimise their tax bills and a crackdown on the way in which North Sea oil and gas companies calculate their tax liabilities. The Revenue will also clamp down on companies using UK-controlled offshore vehicles to minimise their tax payments.