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Taxpayers urged to prepare for new compliance rules

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Taxpayers and businesses need to be aware that a new regime on how tax compliance checks are carried out will soon be in force, HM Revenue and Customs (HMRC) has warned.

The changes in the rules mean there will be new information and inspection powers for HMRC, new record keeping requirements for taxpayers and new time limits for tax assessments.

As from 1 April 2009, HMRC will have one set of powers covering PAYE, VAT, income tax, capital gains tax, corporation tax and the construction industry scheme.

Under the terms of the Finance Act 2008, the new laws will give HMRC the right to visit businesses in order to inspect premises, assets and records, and to ask taxpayers and third parties for more information and documents.

There will also be extra safeguards put in place to protect taxpayers.

Dave Hartnett of HMRC said: “This new approach to compliance checks will improve HMRC’s ability to ensure that the right tax is paid at the right time. We have consulted with taxpayers and their agents to make very sure that HMRC achieves the right balance between obtaining the information we need and appropriate use of our powers.”

To help taxpayers understand the new rules, HMRC has created an online package of information.

HMRC said that the package provides an overview of the new inspection framework, and explains the changes in how HMRC officers check the tax position of individuals, companies and VAT-registered bodies.

There is a downloadable podcast at and more details at

Effectively, the new legislation means that HMRC will have: one set of powers to inspect business records, assets and premises; the ability to see statutory business records without a right of appeal; the ability to look at records for PAYE, income tax, the construction industry scheme, capital gains tax and corporation tax during the tax year before a return has been submitted; a new power to correct obvious errors in a tax return based on information held by HMRC; and a single approach across all taxes for asking taxpayers and third parties for supplementary information.

As part of the changes, there will be new rules on the way that HMRC must conduct compliance checks. These include: a new four-year time limit for assessments and claims, a reduction from six years for income tax, capital gains tax and corporation tax and an increase from three years for VAT; reductions in extended assessment time limits; a streamlined process for closing corporation tax assessments; a new statutory ban on inspecting purely private dwellings without consent; a statutory requirement for HMRC to give at least seven days prior notice of a visit, unless either an unannounced visit is necessary, or a shorter period is agreed; a new requirement that unannounced visits must be approved beforehand by a specially trained HMRC officer; and a statutory requirement on HMRC to act reasonably.