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Joint Review of ITSA Enquiries – Inland Revenue

Category Technical Articles
AuthorTechnical Department
The Inland Revenue has recently issued a framework for undertaking income tax self-assessment (ITSA) enquiries in response to the report of the joint Inland Revenue and Chartered Institute of Taxation review in October 2000. It was agreed that a number of procedural areas in connection with full enquiries, which were causing concern, would be looked at.

Article published in the March 2002 issue of Tax Adviser.

The Inland Revenue has recently issued a framework for undertaking income tax self-assessment (ITSA) enquiries in response to the report of the joint Inland Revenue and Chartered Institute of Taxation review in October 2000. It was agreed that a number of procedural areas in connection with full enquiries, which were causing concern, would be looked at. These were:
  • opening letters, in particular their length;
  • requests for private bank account details;
  • requests for interviews at an early stage of the enquiry; and
  • ‘Faster Working’.
The work in taking forward the report and developing the framework was assisted by representatives of the Operational Consultative Committee (OCC).

The first part of the work was focused on ascertaining the prevailing practices and views of Revenue staff in the above areas, and how that compared with training, guidance and Codes of Practice. As part of the review nine network offices were visited during March 2001 and meetings were held with groups of enquiry caseworkers and managers. A selection of enquiry cases were reviewed and the factors giving rise to complaints examined, opening letters and instances of good practice were also reviewed.

The second phase of work involved talking to groups who represent agents and un-represented taxpayers to understand the impact on them of current Revenue practice, and to gain more information about how we can work together to achieve an enquiry system that is fair to everyone involved.

Subsequent to the Office visits two workshops were arranged, one for operational Revenue staff to validate understanding of the comments made at each of the visits and a further workshop for the OCC sub-group working party to report back findings, review progress and ensure that the major issues had been captured and understood. Summaries of these workshops were widely distributed for comment.

Arising from this consultation and discussion process a framework has been formulated within which ITSA enquiries will be worked and to which professional advisers will be encouraged to adhere. The framework proposal received approval from the Operational Consultative Committee.

The Framework consists of the following elements.

Faster working

The scheme will be withdrawn. Both Enquiry officers and agents should be encouraged to work within a 15-day turn-around time. Where this is not possible or circumstances dictate, Enquiry officers and the profession should be encouraged to agree their own timetable at the beginning of the enquiry to take account of one another’s needs/difficulties.

Opening letters
Content

Whilst we should aim for national consistency, we will encourage enquiry officers to adopt a less formulaic approach to opening letters. We would want to see enquiry officers thinking more about the particular items/information required in individual cases. We will still expect the letter to request appropriate books and records possibly including items which were not used in preparation of the accounts, but which are relevant and can reasonably be required in checking a return, e.g. appointment diaries. Enquiry officers should not ask for details of investments not required to be shown on the return, e.g. individual savings accounts (ISAs)/personal equity plans (PEPs) at this stage of the enquiry, unless means have been identified as a risk.

Time Limits

We will encourage enquiry officers to agree a time limit for responses (normally 30 days), but to show a flexible approach where warranted.

Copying opening letters to taxpayers

The views on this were equally divided. We therefore propose copying the opening letter sent to agents, to their clients with the S9A notice, for an initial period of six months. We intend to monitor and review the response at the end of this period.

Letters to include identification of full/aspect

We will make it clear in the opening letter whether the enquiry is a full enquiry or into only aspects of the return. The letter will make it clear that aspect enquiries may become full enquiries.

Interviews/ meetings
Early meetings

Enquiry officers will be encouraged to make early contact with agents and to offer an early meeting, which should be held after the initial review of the records. There may also be instances where it would be useful to meet and discuss the construction of the accounts before the examination of the records. Such meetings should lead to a better understanding of how the accounts have been prepared. In deciding whether such a meeting is appropriate the additional cost to the taxpayer should be considered. This meeting will not, in the majority of cases, replace a meeting with the taxpayer.

Agenda

Enquiry officers should provide an agenda covering the main areas for discussion. This should enable the agent to carry out any necessary preparation or research in advance of the meeting. It should be case specific but not a detailed list of questions and should not be seen by either party to be exhaustive or restrictive. We would not expect a completely new major agenda item to be introduced at the meeting unless something unexpected is revealed during the course of the meeting.

Content

Again, enquiry officers, whilst being encouraged to use a standard approach, should adapt that approach to the circumstances of the taxpayer, particularly when considering questions relating to personal expenditure. Questions involving a spouse’s income/expenditure may be asked with prior agreement or where the taxpayer introduces information relating to a spouse’s contribution to the household.

Place and time

Enquiry officers should be encouraged to offer a flexible approach to the time and place of any meeting subject to health and safety/personal security issues. Meetings at business premises should be the norm rather than the exception, this would assist in making the meeting less intimidating for the taxpayer and provide opportunities to see the business. Where small businesses are operated from home it is accepted that this might not be appropriate.

Access to non business bank details (including credit / charge/store cards)

As part of this review we have looked again at the guidance written at the time self-assessment (SA) was introduced. We recognise that it can be clarified and that it should also be made public so that the professions, taxpayers and our staff have a clear and consistent view of our stated practice.

It will not be appropriate to request private bank details in every case nor as a matter of process. However, where accounts are not based on a robust and effectively operated record-keeping system which is supported by adequate and appropriate safeguards and/or include unvouched or unverified sums, it would be reasonable to request the private bank details with the other records. The position could be established through telephone contact with the agent or by making the basis of the request clear in the opening letter. It is considered reasonable to request such details at an early stage to ensure that the enquiry is brought to as speedy a conclusion as possible.

Where any limitations are concerned solely with unvouched or unverified items of a minor nature e.g. use of home as an office or weekly laundry, then it would not be appropriate to seek access to the non business bank details.

In addition, we would welcome provision of the private bank details with the records where agents consider that it would be helpful in order to highlight any particular issues or to expedite conclusion of the enquiry.

The current guidance which sets out the reasons where it would be appropriate to request private bank details will be revised and made public.

General

The committee will encourage their members to work with Enquiry officers to provide timely and complete responses where the enquiry is worked within the proposed framework.

We will explore further the possibilities of taxpayer support through a question and answer (Q&A) leaflet, helpline or video.

Management

We will address improvement of management of investigation cases through training and revised guidance.

Guidance

Our guidance will be amended and clarified to cover aspects of this framework and supported where necessary by additional training.

We expect to start operating within this framework in March 2002 though it will take some time to deliver additional training and before our enquiry officers are fully familiar with this new approach to ITSA enquiry work.

As a result of this review a number of issues have been raised as to the appropriateness of the framework document in relation to enquiries into Corporation Tax returns. We are currently looking at whether these outcomes can be translated and whether there are any legislative issues that would require a different approach.

Technical Department
020 7235 9381

March 2002 by

 

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