HMRC is suspending enquiries to taxpayers and businesses that are under investigation as a result of the COVID-19 pandemic, but they should not be lulled into a false sense of security warns leading tax and advisory firm Blick Rothenberg.
Tax dispute resolution partner at the firm Fiona Fernie said: ‘HMRC is writing to taxpayers under enquiry acknowledging that during the current lockdown they are being instructed not to request information or documents and not to press for responses to requests already made.
‘Indeed, in some cases they are suspending enquiries at this difficult time. While this may seem to be welcome news, there may be good reasons to press ahead if taxpayers or their businesses are already under enquiry.
Fernie added that: ‘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.
She noted that: ‘HMRC is focused at the moment on the fact that many taxpayers will need time to pay (TTP) and indeed they have a dedicated helpline manned by 2,000 staff dealing with this.
‘Hopefully that will mean that it is possible to agree something sensible for the taxpayer.
‘However, 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 concluded that: ‘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 firm also warns that this is a good opportunity for businesses to make sure their house is in order, particularly for those who are taking advantage of the Job Retention Scheme (JRS).
Robert Salter, a director at the firm who specialises in expatriate and employment tax support for fast-growing entrepreneurial businesses, noted that: ‘Jim Harra, head of HMRC, has already publicly admitted that the government’s COVID-19 job retention scheme has significant fraud risks associated with them.
‘It is vital for legitimate businesses to ensure that they correctly document and evidence any claims that they make for JRS grants in respect of their furloughed employees, if they wish to avoid any future audit challenges from HMRC in respect of these claims.
He added: ‘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 COVID-19 ‘chaos’ and confusion has subsided.
Salter also highlighted that among the evidence which businesses claiming JRS support should retain are:
- An assessment showing impact of COVID-19 on the business and how this justifies the furloughing of staff.
- Clear calculations backing up the amount being claimed under the JRS.
- Formal written paperwork between the employer and employee backing up the furlough arrangements and the parties agreement to these.
He concluded that: ‘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.’
Image credit: Freepik