Openness and Early Dialogue in enquiries

HMRC recognises the need to get its communications right across all areas of its responsibilities. This is particularly important where additional burdens may be felt by taxpayers and their agents as a result of a formal enquiry into tax affairs.

HMRC and Taxpayer Representative Bodies have been working together to consider how earlier and more open communication can improve the way we deal with our formal enquiries.

We have reviewed and consulted on current procedures and developed proposals for a different approach which will be tested between November 2007 and April 2008 – this approach is called ‘Openness and Early Dialogue’.

Openness means that HMRC will advise taxpayers and any agents acting on their behalf :

  • whether the enquiry is “full” or “aspect”; and
  • why the enquiry has been opened.

Early Dialogue is a different process which is likely to have more impact on a full enquiry than an aspect enquiry. It will, however, help the focus of aspect enquiry where complex tax issues or commercial transactions are under review.

At the start of the enquiry, HMRC aim to agree with the taxpayer and/or their agent an explicit, though flexible, timescale for:

  • an initial meeting, or a telephone call in certain cases;
  • the production of information and documents;
  • the records examination; and
  • a discussion of findings.

The Openness and Early Dialogue tests will explore the possibility of some, or indeed all, of these steps taking place on the same day.

A full enquiry is one which seeks to address all the significant risks or error in the return, including the risk of the return being fundamentally incorrect.

An aspect enquiry is one which falls short of a full, in-depth examination of the whole return, and instead concentrates on one or more aspects.

An early meeting, or a telephone discussion, together with the letter advising the reason for the enquiry, aims to help:

  • the taxpayer and the agent understand the enquiry process more precisely and agree an appropriate timescale to carry out the various elements;
  • HMRC to understand the precise nature of the business or the circumstances of the individual under enquiry, the records kept and the work carried out by the agent in compiling accounts and Tax Returns, before HMRC review the records; and
  • focus the enquiry on the key points of risk and eliminate less important elements at the earliest possible stage.

An agenda for the meeting, adapted where there is no agent acting, would include:

  • introductions by those present to include an explanation of their roles and responsibilities;
  • an explanation by HMRC of the enquiry process from the review of the records through to closure;
  • a description from HMRC of why the enquiry was opened;
  • details of HMRC’s requirements and the opportunity for the taxpayer to make a further declaration if appropriate;
  • a description from the taxpayer or agent of the nature and running of the business, the record keeping system, and any other relevant matters;
  • details from the agent of the work carried out to produce the figures on the Return from those presented by the taxpayer and any accountancy points not dependent on the records;
  • a discussion of the records kept and agreement of those to be reviewed, including a detailed explanation of why any non-business records have been requested; and
  • an outline timetable for future actions and responsibilities for those actions.

Not attending a meeting will not, in itself, be seen as a lack of co-operation.

Following the initial meeting, HMRC will carry out a review of the appropriate records which may be followed by a further meeting to discuss the findings.

At this second meeting the taxpayer and any agent acting will be given an opportunity to answer any questions or concerns arising from the record review. Agreement should then be reached either about the actions required or that the enquiry can be closed.

Ideally the initial meeting, record review and discussion of the findings will be held on the same day, but where this is not possible a mutually convenient date will be arranged.