Having filled in your tax return safe in the knowledge that you’ve done everything right and have filed it in time, there’s little more disconcerting than getting a letter through your door from HMRC telling you that you are being investigated.
But that’s exactly what is happening to many small business and self-employed worker taxpayers right now. So here's the skinny on the Schedule 36. HMRC’s operational guidance notes state that before a Schedule 36 notice is issued, information should be requested informally (visions of the taxman saying, 'Yo. Can I look at your accounts, like'.). If the informal request is not complied with, under the new HMRC powers, HMRC is then able to issue a Schedule 36 notice. This is basically just another request for information, and is issued because Mr Taxman reckons there is reason to suspect that an amount of tax which ought to have been assessed may not have been.
This request has to be made by HMRC within the enquiry window (12 months after the filing date for unincorporated businesses). However, this is where the problem arises. Such notices are being received later than 12 months, thus making them invalid. And the legislation itself is monstrously complex. It has become HMRC’s Achilles’ Heel as they haven't defined Statutory Records in the way that they are legally required to do.
HMRC did attempt to clarify the issue by putting out a tax self-help series: Keeping records for businesses: What you need to know. But this only applies to businesses, and individuals who own businesses, and not self-employed taxpayers. So any self-employed taxpayer who has received a Schedule 36 notice since April 2009 should object to it and question its validity. For other taxpayers the same would have applied since April 2009 to the date of the issue of the Help sheet-early 2010.
In recent times HMRC has recognised the problems surrounding the issue of Schedule 36 notices as being somewhat heavy handed by setting up a Dispute Resolution Unit, with the intention of operating an Alternative Dispute Resolution (ADR) process. The idea is to ensure that HMRC is more specific in its request for information, rather than the Blunderbuss approach of Schedule 36, which is not exact.
It’s time the law was clarified and HMRC were more open and honest about their intentions and actions. So, if you're confused by it all, at least rest assured in the fact that even us professionals struggle to pick all the red tape apart.
For more information, or to contact Mike, visit Chaterfinancial.com