Do not accept invalid tax enquiries!

We are seeing and hearing about an increasing number of HMRC errors in relation to tax enquiries.

The Issue

I am not just talking about typos and the occasional time when HMRC’s letter writing goes haywire, but rather notices which are addressed to a different taxpayer than they are sent to.

This issue seems to be particularly relevant to the raft of enquiries (purported to be) initiated by the Individual and Small Business Compliance Unit in connection with research and development (R&D) tax relief claims.

Example Scenario

Our client, Widgets Ltd, received a letter on 20 September 2023 enquiring into an R&D claim made in the company’s tax return for the year ended 31 December 2021. The return was submitted on 31 December 2022.

So far so good you may say – the enquiry has been made within a year of the tax return being submitted.

However, although the letter was sent to Widgets Ltd on time, the enclosed notice of enquiry - also dated 20 September 2023 - was addressed to a completely different (unrelated) company called Valves R Us Ltd. Widgets Ltd didn’t think much about the mention of the other company and started diligently answering HMRC’s standard queries on R&D.

We got involved in March 2024 and rapidly closed down the enquiry. HMRC’s notice had been invalid and they had almost certainly breached a duty of confidentiality by sending one company’s enquiry notice to another company.

One wonders whether Valves R Us Ltd received the enquiry notice for Widgets Ltd and also how big the extent of this problem really is...

We fear that there will be many ongoing cases where companies are spending time and resources dealing with invalid enquiries.

Hamilton Rose's view

The rules are very clear that enquiry notices need to be issued within a set period of time. The above kind of error is probably more likely to occur when HMRC do one of their ‘mass initiatives’ as is the case with R&D.

However, it is simply not good enough if they cannot gear their systems up to match the enquiry notices with the recipients of the letters. Here, they should forfeit the opportunity to enquire.

Everyone should be carefully checking the documentation that purports to open a tax enquiry and, if it is erroneous, they should ask HMRC to accept that the enquiry is invalid. Clearly it would not be a good idea to raise this sort of objection in time for HMRC to get its act together and raise a proper enquiry!

We would be interested in hearing from readers who have experience of enquiries being erroneously made in this way.