A tax inspection can happen to any salon or barber business, regardless of size, and when it does it can be very disruptive and stressful.
An inspection can be completely random or can be triggered by an inconsistency in your figures or Tax Return.
HMRC has clamped down recently and the last few years there’s been a 29% surge in HMRC prosecutions. In this NHF blog post we look at:
- The legal powers HMRC has to investigate your hair or beauty business.
- What it can, and cannot, demand of you.
- How the NHF gives Members free Tax Inspection support and advice.
- Free legal expenses insurance up to £50,000 (for NHF Members).
HMRC powers on a salon Tax Inspection
HMRC has both civil and criminal powers:
1. Civil law powers for HMRC on a Tax Inspection
- Require documents to be produced or information provided.
- Enter and inspect salon business premises, business assets or documents.
- Have access to computers on which documents were produced.
- Inspections will normally take place at an agreed time, or on seven days notice, but they can be unannounced.
- Fines can be imposed for non-compliance and, since you will be compelled to comply anyway, non-compliance is really not an option.
2. Criminal law powers for HMRC on a Tax Inspection:
HMRC also has powers under criminal law deriving from the Police and Criminal Evidence Act 1984 (known as PACE) and the Serious Organised Crime and Police Act 2005 (known as SOCPA).
These two acts give it power to:
- Enter and search your salon premises.
- Require production of documents.
- Seize items such as computers.
- Arrest people and HMRC may, under SOCPA, require people to hand over relevant material that could help an investigation. Sanctions vary under each act, but can include fines and even imprisonment.
- When exercising its criminal powers, HMRC will normally agree a time or, at least, give notice, but it does not necessarily have to. In fairness, HMRC has indicated that unannounced inspections will be the exception rather than the rule, but that could change.
3. Safeguards for salon owners:
- To exercise these criminal law powers HMRC generally needs a magistrate, justice of the peace or a circuit judge to issue a warrant.
- HMRC cannot enter any part of a premises which is used as a dwelling (home); this would appear to give those who work at home a lot of protection. But, remember, HMRC can generally think of some other criminal offence to get a warrant.
- Finally, there is what is known as legal professional privilege. In simple terms, HMRC is not entitled to have access to documents, including those held on a computer, which are “privileged”. Legal advice privilege covers confidential communications between a solicitor and his client in the context of seeking or giving legal advice, whilst litigation privilege covers communications between solicitor and client, and solicitor and third parties in connection with actual or pending litigation.
Help and advice if the HMRC come knocking on your salon door
“We all hope it will never happen, but every salon owner should assume that at one time or another they might be the subject of a tax investigation,” explains Peter Mount of Woodfines Solicitors.
|NHF Legal Lifeline for hair & beauty businesses
If you're an NHF Member you automatically enjoy peace of mind, practical support and cost protection for Tax Inspections:
If the worst comes to the worst and HMRC does come knocking, the good news is you can make the process much more straightforward (and hopefully much less stressful) by following these few simple and sensible financial housekeeping steps:
1. Make sure your salon paperwork is in order
Document handling is one of the most important areas for hair & beauty owners to consider:
- Do not keep documents that you are not obliged to keep and have no need of.
- Retain documents that you are required to keep by law, and know where to put your hands on them.
- Suspend any destruction programme immediately if you receive any notice or warning from HMRC; officials will give you a hard time if you continue to destroy documentation and they become aware of it.
- Make sure you are in a position to produce documents that might be required quickly and easily; all your receipts in a biscuit tin on a shelf somewhere is a bad idea.
- Take advice on, and understand, what documents may be the subject of legal privilege and keep them separately. If you’re a Member call the Legal Lifeline immediately you are notified about a Tax Inspection. Don’t delay.
2. Know who will take charge of the Tax Investigation
It is important to have identified who in your salon or barbershop business should be involved if there is an investigation and make sure they are properly briefed.
Who this is will depend on the size of your salon organisation, but identification of the appropriate personnel resources in advance will improve both the speed and effectiveness of your response. The key is to treat it as another form of disaster recovery.
Ensure you are aware of which external professional advisers you would call on if there is an investigation, and make sure you know who they are. If you’re an NHF Member then don’t forget to call the Legal Lifeline for free guidance as soon as possible.
3. If your salon or barbershop is the subject of an investigation:
- Make sure the notice is in order and take advice if you are not sure.
- Ensure there are complete copies of all originals handed to HMRC, and of all copy documents that are handed over.
- Keep a complete file of all paperwork relating to the tax investigation.
- Consult your solicitor, accountant and the NHF, claim privilege early and appeal if necessary.
- Co-operate. You do not have to roll over, but there is no point being obstructive for the sake of it. Deal with HMRC courteously and promptly and, if you are refusing to hand something over, make it clear why.
4. How to cope with a dawn raid on your hair & beauty business
Dawn raids are unusual and can be intimidating, but the reality is that HMRC is unlikely to go to these lengths unless it thinks you, or someone in your salon business, is seriously out of order.
Do deal with them promptly and courteously, and do not lose your head. But do get your professional advisers on the scene quickly.
It is also worth knowing there are several things you can legitimately do to delay HMRC and re-establish some control over what is going on:
- Check the identity of the HMRC officers attending.
- Check the warrant and try to delay access to your salon premises until your solicitor has had a chance to look it over.
- Try to contain HMRC’s activities but co-operate:
- Offer a room to use as an office
- Offer copying facilities if you have them, preferably in the immediate area of any room officials are using.
- Accompany personnel around the building.
- Limit knowledge of the inspection. If salon team members do not need to know, do not tell them; rumour that an inspection is taking place can be damaging.
- Do not destroy or tamper with documents.
- Brief relevant salon employees whose help you require.
- Once you have your professional advisers on the scene let them take over and follow their advice.
Free advice, support & protection for members
Remember, the NHF Legal Lifeline offers free advice on tax matters, PLUS the NHF’s legal expenses insurance provides free protection for you against the cost of tax investigations up to £50,000.
If you wish to join the NHF join online today or call our membership team on 01234 831965. Membership starts from £144 per year for Solo membership and is open to all hairdressing salons, beauty spas and salons and barbershops.
Other useful resources for Tax Inspections from HMRC: