Information Powers: TMA70/S19A and FA98/SCH18/PARA 27: Private Accounts - Relevant Factors
The over-riding test EM10017 is based on what is reasonable (that is, fair and sensible) in the circumstances. The question of whether it is reasonable to request private documents including bank and building society accounts can only be determined by reference to the facts in each individual case.
Where the private accounts are those of a director of a company, the appropriate legislative power may be TMA70/S20(3).
Non-business bank details should not be requested in the opening letter as a matter of course. However, where accounts are not based on a robust and effectively operated record keeping system which is supported by adequate and appropriate safeguards and/or include unvouched or unverified sums, it would be reasonable to request the private bank details with the other records. The position could be established through telephone contact with the agent or by making the basis of the request clear in the opening letter.
Where your concerns are solely with unvouched or unverified items of a minor nature e.g. use of home as an office or weekly laundry, then it would not be appropriate to seek access to the non-business bank details.
In determining whether a request is reasonable you should consider factors including those listed below before making a request or issuing a Section 19A notice. As you must have grounds for the request which would satisfy an Appeal Commissioner you should therefore consider any objections from the taxpayer or agent before the Section 19A notice is issued.
- Where payments from an account to the business are treated as non-taxable e.g. capital introduced (where not independently verified).
- Where it is reasonable to suppose that business records (or the equivalent for non-business transactions) are incomplete.
- Where it is reasonable to suppose that undeclared income or gains have been credited to the account.
- Where you have doubts or questions about means or capital growth.
- Where it is reasonable to suppose that the return was based, wholly or partly on the ‘private’ bank account documents.
- Where taxable receipts or expenditure are unvouched or estimated and it is reasonable to expect that this expenditure should have been vouched/recorded.
When determining whether to require non-business information you should consider
- costs (in time and money), and pursue the matter only where you are satisfied that the potential benefit to the enquiry is proportionate to these costs. This is particularly relevant in seeking duplicate statements for non business bank accounts.
- rights of privacy (Article 8). You should pursue the matter only where you can demonstrate that the information or documents to be required are an effective way of dealing with the queries we have about the tax returns and the intrusion into the persons private life in the minimum necessary to achieve this aim. EM1350+ gives further guidance.
The fact that correctly and contemporaneously recorded business drawings were deposited in a non-business account is not sufficient reason alone to request the details of that account.