Opening the Enquiry: Information Request: Full Enquiry - Business Taxpayer
You will want to find out what records and information were available to calculate the profit or loss and whether there were inherent weaknesses in the record-keeping.
Opening letters requesting information should be tailored to the particular circumstances of the individual case. Thought should be given to the nature of the individual’s business and the risks identified. Though requests for information are likely to be broadly similar they should not be a standard list.
The letter should request appropriate books and records, possibly including items which were not used in preparation of the accounts but which are relevant and can be reasonably required in checking a return for example, appointment diaries.
You should not ask for anything that could not be required under a statutory power unless you make it clear that compliance with such a request is voluntary.
At this stage of the enquiry you should not ask for details of investments not required to be shown on the return, for example ISAs/PEPs, unless means have been identified as a risk.
The following is a list of areas which might be covered by the information request, some will be applicable in almost every case, others will not. The list is not comprehensive - each business is different, there will be unique features in all cases. A stereotyped approach should be avoided.
Documents on which the return is based
- Business taxpayers are required to keep certain records, see CH11300. Unless you are dealing with a very small business it would be reasonable to assume that these would include a cash book, petty cash book, sales and purchase invoices and business bank account statements.
If cash drawings were not recorded, on what basis were they estimated? Where such an estimate has been used in preparing the accounts the figure of profit depends in part on its accuracy so you will need to look at the private side to satisfy yourself that the estimate is reasonable.
The absence of payments likely to be made by cheque could indicate the existence of a private bank account - is there any obvious sign of payments into it?
- Supporting documents could include prime records such as till rolls and bookings diaries. This will tell you whether the prime record of sales or bankings was used as the starting point. If the latter, you will want to know why the record of sales was not used. If the figure for bankings was used, you will want to consider whether some cash sales were neither banked nor spent in the business and so escaped inclusion. Inadequate sales records would be a weakness in the record keeping.
Accounts and computations
- A copy of the business accounts, drawings accounts, directors’ current and loan accounts distinguishing between cash and cheques or capital introduced specifying the source.
- Full capital allowances computations.
Preparation of accounts or SAI
- List of business/private records examined by agent.
- Details of estimated or balancing figures used in the preparation of the accounts or SAI.
- Copy of the cash account, petty cash account and bank reconciliation.
- Basis on which private use adjustments were made.
- Analysis of debtors and creditors.
- A reconciliation between the records and the sales figure in the accounts.
- Documents or particulars from the Link papers, see CH231000+, explaining journal or other adjustments made in the preparation of the accounts or SAI.
- Reconciliation between PAYE and subcontractor records and the figures shown in the accounts.
- Information relating to any technical points you wish to take up.
If the records on which the return was based include private bank, building society or credit card accounts, these may be requested in the opening letter of the enquiry to enable you to check those entries.
In checking entries for business income you may consider that sight of the non business bank, building society or credit card details is required. You can ask for private records at the start of your enquiry if means have been identified as a risk or you have already established, for example through telephone contact with the agent, that the accounts are not based on a complete and effective record keeping system. See CH207320+ for further guidance on requesting private accounts.
If you have already established a reason for needing private records at the start of your enquiry you should explain the basis of your request in the opening letter.
It is essential that every case is considered on its own facts. You should not request non business bank, building society or credit card details as a matter of course where they do not support a specific entry on the return. Equally a request should not be made giving a general reason such as “I need the statements from all your private bank and building society accounts in order to check that the return is correct”.
If, after consideration of the facts of the case, you decide that it is not reasonable to request the details in the opening letter you will not be prevented from asking for the information at a later stage. You can request the details when you can demonstrate that it may be relevant and that you reasonably require to see it.
It is our view that in principle private bank, building society or credit card account records can reasonably be required under FA08/Sch36/Para1 for the purpose of checking the accuracy of a tax return. But you need to consider whether it is reasonable to require them in each particular case and, if so, at what stage.
You should not normally request particulars such as statements of assets or capital statements in your opening letter. This course of action may be appropriate in exceptional circumstances. For example, where the taxpayer has submitted a return consisting largely of estimated figures and has used the free format space on the return to explain that no records of business income and expenditure were kept during the year.