A state of intervention?

In an effort to reduce the time taken up by enquiries, HMRC announced, in March 2006, a number of proposals for different ways of checking the accuracy of self assessment tax returns as an alternative to in-depth enquiries. Trials of these ‘interventions’, as they are called, began in July. The options under trial are:

• short risk review: HMRC develop profiles for particular trades which are then compared with selected taxpayers and, if there appears to be a risk of error, a questionnaire is issued aimed at assessing whether significant risk exists
• telephone contacts: a trained officer telephones the taxpayer and outlines why HMRC consider an error has been made and advises how this can be put right
• current business record keeping review: carried out during a ‘live’ accounting period, a visit is made to examine record keeping procedures especially in connection with cash sales, drawings and wages
• self-audit: a letter is sent or a telephone call or visit made to point out risks around specific entries on the tax return and the taxpayer is encouraged to make any amendments necessary
• correction challenge: for small amounts, and subject to appeal, HMRC will unilaterally ‘correct’ a return where they have reliable evidence that an error has been made
• current health check: HMRC will contact specific target groups, based on previous compliance activity, and will explain known risks of non-compliance and give assistance to put matters right.

As part of the trials, letters have been sent to selected taxpayers outlining common errors which may be relevant to them. These then direct the recipient to pages on the HMRC website, setting out, in some cases, complex rules. The inevitable inference is that the return is incorrect and this may cause worry and confusion.

The trial is voluntary and HMRC have indicated that a decision not to take part should not automatically result in an in-depth enquiry.

As your agent, we should be given advance warning if you are selected. However, if you are contacted, and you have not already heard from us, please get in touch so that we can jointly decide your strategy.

Time will tell how these ideas mature and we will keep you informed of new developments.