What COVID-19 means for contractors under HMRC enquiry

At a time when the world has been plunged into coronavirus-led chaos and limited company businesses may even be fighting for their very survival, taxation is probably the last thing on your mind as a contractor.

However, HMRC has not entirely forgotten about you and for a change, you’re not necessarily on their radar for the wrong reasons, writes Nathan Ross-Sercombe, director of tax investigations at Markel Tax.

Under enquiry?

HMRC has not (currently) published anything about their approach to ongoing enquiries during the pandemic, but communications on individual cases suggest that HMRC’s ability to continue to operate has been severely curtailed.

Two weeks ago, HMRC staff were instructed not to return to their offices and the instruction came unexpectedly to many.  So there was no time to scan files and other documents required to continue working cases. In addition, HMRC’s IT systems were not designed to support simultaneous home-working for such a large organisation and officers have been instructed not to hold face-to-face meetings.

In fact, last week, the Revenue's officers were instructed to pull back from customer-facing compliance work, unless the customer wished to proceed. Letters giving the option to suspend activity are now being issued to some clients, yet HMRC is also saying that where statutory time limits are in point, they may have to write to them again.

Alternative Dispute Resolution: Good news; bad news

HMRC has indicated that they are continuing to operate their Alternative Dispute Resolution facility, but the general policy on face-to-face meetings applies. This will come as a disappointment to many contractors who may feel that they will not get the most out of the ADR process if it has to be done over the telephone. However, the good news is that for existing cases HMRC are agreeing to postpone meetings. Unfortunately for new cases, it’s bad news though – the Revenue are offering the process by telephone only.

So you’ve got a case at tribunal…

The tribunal service part of the Gov.uk website indicates that justice must continue to be administered, despite COVID-19. So trial and tribunals are proceeding subject to implementation of the government’s coronavirus guidelines, notably those on social distancing and the necessity to self-isolate.

In addition, on March 23rd, the Lord Chief Justice announced a temporary pause on Jury trials and on March 27th, we received an email from the tribunal service informing us that Judge Sinfield, acting as Chamber President of First Tier Tribunal (Tax Chamber), had issued a direction that all proceedings are stayed for a period of 28 days. It is clear, then, that the situation of the courts continues to change on a day-by-day basis.

What about settling HMRC enquiries?

Given the clear difficulties outlined above, now might be a good time in many cases to broach the matter of settlement.

With HMRC unable to proceed with their enquiries in a meaningful way in many cases, officers may be taking stock of their case-loads and looking to rationalise, to avoid the inevitable problems that this situation will begin to store up. Unlike the general public and toilet rolls, no inspector will want to stock-pile old unworked enquiries!

In cases where settlement is on the horizon, clients and advisers should be able to obtain generous terms for payment arrangements.

Paying existing debts: Time To Pay

Ordinary measures

Ordinarily, where there are difficulties in paying debts that have been passed to the collector (and therefore it is too late to agree a payment arrangement with the inspector in charge of your enquiry), it is sometimes possible to agree a Time To Pay (TTP) arrangement. Such an arrangement is a programme of repayments tailored to the meet the taxpayer’s ability to pay, without causing undue hardship and are agreed between taxpayer and tax authority.

An ordinary collector can authorise TTP of up to 12 months and longer can be given by managers. Contractors often ask, ‘Why does it matter?’ on the basis that surely HMRC will still apply late payment, interest and penalties. Well, it matters because although there is indeed still interest, a TTP arrangement can take penalties off the table. Section 108 of the Finance Act 2009 introduced measures to do just this. Among the sanctions that can be avoided are:

• Late payment penalties under Sch 56 FA2009.
• Late payment Surcharges under section 59C(2) or (3) of TMA 1970 (for years covered by the old rules).
• VAT Surcharge under section 59(4) or 59(4) of VATA 1994.

In order to get this relief, the taxpayer must:

• Approach HMRC before they become liable for the penalty.
• Get an agreement for a Time To Pay arrangement.
• Adhere to the arrangement and comply with any conditions of the arrangement.

Special Situations

All this said, the good news for any one struggling to make a living in the current circumstances and who are therefore unable to meet their tax liabilities, is that in his Budget 2020, Rishi Sunak declared the COVID-19 crisis a ‘Special Situation’.

This status awarded by the chancellor brings those experiencing difficulty within the ambit of the legislation at s135 FA 2008, which was introduced in response to serious widespread flooding in 2007. This legislation is far more powerful than that at s108 FA2009, as it covers any debt due to HMRC commissioners, allows late payment interest to be suspended and also can be applied retrospectively, so it does not matter if a penalty due date has already been triggered.

HMRC has set up a dedicated hotline available to any taxpayer experiencing difficulty in paying because of the impact of COVID-19: 0800 024 1222, Monday to Friday 8am to 4pm.

What about ordinary, everyday tax compliance?

Despite online posts to the contrary, HMRC has not indicated or officially stated that its tax compliance requirements have been relaxed. So the Revenue’s customers should continue to make their necessary returns as normal. However, clearly the ‘reasonable excuse’ provisions at s118 of the Taxes Management Act will apply, allowing those who are unable to meet their compliance requirements for reasons beyond their control, to avoid any penalties that would normally apply in relation to those failures.  

VAT: a deferral

With Value Added Tax, HMRC has gone one step further, in relation to payment, declaring a VAT holiday for any amounts due between March 20th and June 30th 2020 – no payment needs to be made in respect of these debts by anyone until March 31st 2021, with no interest or penalties applying. There is no requirement to report this deferral, businesses should simply stop their Direct Debits and make no further payments in the period.

Thereafter it will be a matter for businesses to decide whether they need the further assistance offered by s135 FA2008 in respect of other existing or new debt. HMRC have indicated clearly that VAT returns should continue to be made on time.

Finally, get in while the going’s good

In these times of great uncertainty due to coronavirus, and times of hardship for many directly or indirectly impacted by the outbreak of covid-19, it is encouraging to see that HMRC and the government have learned important lessons from past experience and reacted quickly to help people to survive as well as they can -- for now at least. So, if you are under  HMRC enquiry or struggling to meet your tax liabilities, do not bury your head in the sand. Instead, contact your tax adviser, as if ever there was a time to ask a favour of HMRC, it is now, while their ear is a sympathetic one.