Taxman visits to home businesses - the truth

No one will be interested in this blog post. It contains the truth about the taxman's new powers of entry to enter your home. Don't bother to read on if you simply want reinforcement of the scaremongering that has been widely reported over the last few days.

The Times for example reported "HMRC given powers to raid home businesses" and that

"Anyone running a business from home could soon have an unannounced visitor — in the form of the taxman"

The Telegraph piece was headlined: "HMRC allowed to raid homes without warning"

Both papers and many others quoted just ONE firm of accountants (a decent firm to be fair) that had issued a press release giving a worse case scenario about how the taxman could use their new powers after 1 April. It includes the following statement, which is factually correct as far as it goes:

“The many thousands of business people and sole traders who claim expenses for 'use of home as an office' should recognise that from next month, HMRC has the right to enter their home to inspect business records. This power includes visits to any business premises, including any part of a residential home used as an office,”

Background
The new powers were introduced by Finance Acts 2007 and 2008. Over the last couple of years HMRC has held extensive consultations with professional bodies who have been very concerned about the extent of the new powers. HMRC has also made the official line very clear. Unannounced visits to private homes will be very few and far between. And I believe that.

When I was Chairman of the ICAEW Tax Faculty I met with many of the top officials from HMRC. I still see some of them at official functions. They are honourable people and I generally believe them when they explain how they intend the law to be applied. They require extensive powers to constrain the efforts of the worst tax evaders. They don't intend that their new powers will be used on a day to day basis.

Insufficient safeguards
Having said that I have also written previously on this blog about the widespread concern across the profession that taxpayers have insufficient safeguards to protect them from abusive use of HMRC's new powers. So you might expect me to agree with the suggestion that small businesses operating from private homes are suddenly at risk of imminent and frequent visits from the taxman - after all this is the scenario painted by the recent press reports.

My position is clear. I share the concern that others have expressed that the new powers could be misused - just like children enjoy playing with their new toys and learn to use them in unexpected ways. But that won't happen immediately. Of that I'm sure.

In practice
Richard Tyler writing in the Telegraph paints a fairer picture. He notes that:

"The new powers mean that income and corporation tax inspectors will have the same powers of entry and the longstanding powers enjoyed by Customs officials investigating upaid VAT"

There we have it. How often have home based businesses had such unannounced visits in the past? Rarely, if ever.

What this means is that if you are a compliant taxpayer you have nothing to fear. Contrary to the press reports, there is next to no prospect of the taxman starting to make unannounced visits to check up on people running their business from home.

If however you've been defaulting on your taxes you could expect a visit. If you've ignored requests from HMRC to produce your books and records for investigation you could expect a visit. And if you've been involved in tax evasion or even possibly 'abusive' tax avoidance schemes you could expect a visit.

But even then I don't expect such unannounced visits to take place in the near future. Indeed there is a very clear statement in HMRC's own instruction manuals for it's staff:

"a visit would only be justified in exceptional circumstances, perhaps to support a challenge to the amount of domestic expenses claimed as a business deduction."

And note even then such a visit would rarely be "unanounced".

HMRC's public comment
This features at the end of some of the recent press reports:

"HMRC does sometimes need to access premises connected with businesses to see such things as goods and assets where it is reasonable to do so, to ensure the right tax is being paid. Although HMRC is extending these powers, it is also extending safeguards. In particular, unannounced visits can only be made with the approval of specially authorised officers."

Bottom line
What this all means is that someone senior has to sanction an unannounced visit by the taxman. In practice it will be far easier for them to make appointments. Even then they will only insist on coming to your home if there is no other way to secure the information they require. In most cases you will be able to go to the taxman's office. Better yet is to meet with him on neutral ground - eg: your accountant or tax adviser's office.