New powers for HMRC

29 July 2008

The Finance Act 2008 has now become law. The Act introduces new powers for the tax authority, including the right to enter business premises and inspect assets and documents on those premises.

There is widespread concern about these new powers, as many of them come without appropriate safeguards in the view of the accountancy and legal professions. Many of the powers do not include a right of appeal, and the right to enter premises can give HMRC access to those premises at any time and without warning if an “authorised officer” believes that is appropriate. The general right to inspect premises now comes with seven days notice – previously HMRC had sought a 24-hour notice period.

There is also a right for HMRC to have access to a computer used in connection with a “relevant document” and for them to require a member of staff to log them on so that they can interrogate the computer. Again, there is no right of appeal against this power.

So what should the ordinary business person do to protect their privacy?

HMRC are keen to reassure taxpayers and their representatives that these powers will be used reasonably and will be the subject of codes of conduct, so there is no need for you to panic about a new “police state”. However, you may be concerned about confidentiality of other data and disruption to your business if HMRC have access to work computers.

Taking business premises first. The law prevents HMRC from visiting premises that are purely a private residence. Those who occasionally work from home might like to consider whether there is a risk that this makes their home open to inspection by HMRC, as it is used partially for business. If there is no real need to work from home, then maybe staying a little later at the office and having a complete break when you come home is a sensible alternative.

You should also consider the use of computers for accounting systems that have no other data on them and no other “relevant documents”, so that if HMRC do have access to a machine it minimises business disruption if any problems arise and preserves the privacy of the individual who might otherwise store personal information on the computer.

One real problem is that much of the detail of this legislation is still to be set out in secondary legislation, so at present we do not yet have a clear idea what documents are going to be “relevant documents”. We do know that this encompasses the new statutory records also required by Finance Act 2008, but we do not have a thorough definition of what this extends to at present.

Over the coming months the new requirements on record keeping will be more clearly set out, and you may find that you need to adapt your records to comply with the new law.