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HMRC internal manual

Enquiry Manual

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HM Revenue & Customs
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Working the Enquiry: Opening Meetings: Evaluation of Information Provided

Once you start asking questions about the business results, further information may arise, especially about the record keeping. Your aim should be to test fully the credibility of the profits returned, by reference to the risk assessment in the SIP, the records review, and what emerges at the meeting.

As the information is given you will need to be making up your mind whether you are justified in continuing with your enquiries. You should never press-on solely to obtain a trivial adjustment so you can say the case was not settled for nil. If you have found that the records are poor you must still be satisfied that the figures shown are wrong.

A person may not have noted down their drawings but may have recorded all the takings assiduously. You should never therefore seek a round sum adjustment just because records are poor, if you have no other grounds for considering that there has been an understatement of profits.

Where, at any stage in your enquiries, the taxpayer admits that he or she has understated business profits, you should firstly, follow the guidance at EM1362 and then ask for a full explanation of the way the understatement arose and the amounts involved. Allow the taxpayer to talk freely, as far as possible.

Establish there and then the nature of the omissions. Were they a particular type of receipt, regular cash extractions, cheques from certain customers, or the inflation or creation of false expenses?

If it becomes clear that the case falls within the criteria set out at EM0364, due to size or suspected serious fraud you should immediately stop the meeting and contact the Evasion Referral Team (ERT). If after consultation it is agreed that your enquiry can proceed, SI will provide advice on how to proceed.

You should also ask the taxpayer for an explanation of any other omission or understatement which he or she has admitted EM1836.

If what the taxpayer tells you confirms your suspicions you should tell the taxpayer or director that you cannot accept the return. You may be able to quantify the understatement and agree the profits there and then. Whether or not that is the case, you should consider the likely size of the adjustment and whether back years EM1840 and interest and penalties will be involved.