Working the Enquiry: Meetings: Testing Explanations - Trader or Director
Where the taxpayer carries on a trade or profession either as a sole proprietor or as a partner, or is a director of a close company, you must satisfy yourself that any savings revealed or any further disclosures can be reconciled with the available income declared year by year in the accounts and returns. (This indication of the means position will normally have been started, and left within the SIP, by the RIAT). Take into account the taxpayer’s personal and private expenditure (including any exceptional private expenditure). As part of this process pay particular attention to bank accounts and the purposes for which they are used. Where the taxpayer does not have a business but is known to be married to or living with someone who is a proprietor or director, you should consider whether they could be passing to their spouse or partner money which has not been declared EM1852.
If you can show that means available appear to be insufficient to account for the savings and still leave enough for adequate recurring personal and private expenditure and other non-business expenditure, and the taxpayer is unable to provide acceptable explanations of the deficiencies, you can contend that you have reason to believe that profits or income have been omitted or understated. This would constitute a discovery, providing grounds for amending the current year’s return or for making discovery assessments EM3250+.