Working the Enquiry: Meetings: Testing Explanations - Use of Evidence Held
The problem of when best to use the evidence you hold is always a difficult one. Too early a disclosure of precise information may result in the taxpayer telling you little more than you already know, leaving other information concealed. On the other hand, the taxpayer should not be allowed to commit himself or herself to anything you know is factually incorrect.
In dealing with other matters, some refinement of approach is needed. For example, when you have some independent `evidence’ about the type and scale of the business which cannot be squared with the taxpayer’s statements (for example, a newspaper cutting or advertisement, personal observation) it may be better to go over the ground again by asking specifically directed questions, rather than to confront him or her with the `evidence’.
Other statements which need testing are general claims about the effects of wastage, competition, defalcations etc. Such commercial hazards do undoubtedly arise and should not be dismissed out of hand. Your approach should be towards precise quantification. You may be able to display your own knowledge of what is normal in the trade and to put questions in the form of requests for explanations for apparent abnormalities. It will often be found that, even when quite generous allowances are made for these effects, they cannot account for the difference between expected and disclosed profits.