HMRC are suspending enquiries into taxpayers and businesses that are under investigation during lockdown.
Taxpayers under enquiry are being written to, acknowledging that during the current lockdown HMRC are being instructed not to request information or documents and not to press for responses to requests already made.
Despite the changes, businesses are being warned not be lulled into a false sense of security.
Fiona Fernie, tax dispute resolution partner at tax and advisory firm Blick Rothenberg, comments: “Putting off HMRC’s queries until after this difficult period is over may not be as good an idea as it sounds. Many will need to be concentrating hard on reviving their business and HMRC’s questions will inevitably distract attention from that at a time when loss of focus on business management could be potentially devastating.
“For individual taxpayers and businesses whose activities are currently curtailed, it would be sensible for them to use the time they have now to deal with HMRC rather than store up problems for the future, although clearly employees who are furloughed cannot be involved in responding to HMRC enquiries on behalf of their employers. After all, if tax is due – it is still going to be due when we come out of this.”
Fiona also has advice for businesses using the time to pay (TTP) scheme. She says: “Taxpayers do need to bear in mind that tax liabilities are only deferred not extinguished and for TTP they will need to be able to provide information which demonstrates why they need TTP, the impact that COVID-19 has had, and will need to be able to present a plan for repayment.”
That plan will need to include:
- Explanation of the financial hardship;
- The proposed timescale for deferral of the tax;
- Why the payment plan is affordable (this could be based on either future anticipated income or (for example) the proceeds of selling an asset;
- Explanation of the impact of the interaction with other debt financing (i.e. being able to make appropriate payments on both);
- Provision of evidence to show that costs are being well managed.
“For businesses that will probably mean provision of management accounts and preparation of a cash flow forecast. They may also be asked to show the level of their cash reserves. Individual taxpayers are likely to need monthly income and expense statements and a statement of personal assets and liabilities.”
Fiona adds: “The longer the period being requested for TTP the more evidence HMRC is likely to require. Since nobody knows how long the impact of COVID-19 will last, it may be necessary/possible to renegotiate TTP if the original agreement cannot be met. If that turns out to be the case taxpayers should always notify HMRC of the difficulty as soon as possible and before missing a payment”.
The company is also reminding businesses to ensure that they correctly document and evidence any claims that they make for Job Retention Scheme (JRS) grants in respect of their furloughed employees, if they wish to avoid any future audit challenges from HMRC in respect of these claims.
Robert Salter, a director at the firm who specialises in expatriate and employment tax support, comments: “This is particularly important in this situation, as one of HMRC’s main weapons against JRS fraud will realistically be tax enquiries and reviews, once the initial Coronavirus ‘chaos’ and confusion has subsided.”
Robert highlights that amongst the evidence which businesses claiming JRS support should retain are (A) an assessment showing impact of Coronavirus on the business and how this justifies the furloughing of staff, (B) clear calculations backing up the amount being claimed under the JRS and (C) formal written paperwork between the employer and employee backing up the furlough arrangements and the parties agreement to these.
He adds: “Companies which fail to document their claims under the JRS risk having to refund the money in future, (plus potentially interest and penalties/surcharges), if they are unable to defend the amounts being claimed today.”