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HMRC internal manual

Enquiry Manual

Examining Accounts: Records Examination - Planning: Advice to Taxpayer where Records Poor

If deficiencies in the records have been found, not only must any omitted profits be assessed but it must be made clear to the taxpayer what was wrong and how it can be put right, so that the errors do not recur.

When your examination of the business records reveals inadequacies in the record-keeping system so that the prime records cannot be relied upon as an accurate reflection of business transactions, it is important to tell the taxpayer what is wrong. Clearly, nothing can be done about the records up to the time of the enquiry, but if the taxpayer is to be given the chance to improve them afterwards, he or she must be told what was wrong with the system and how it can be improved.

The extent of the advice given will depend upon the circumstances. Where there is no agent acting, the question of what records should be kept and how often they should be completed may have to be spelt out in some detail, preferably at a meeting. However, if the taxpayer is represented by a reputable accountant, it will probably be sufficient to point out the errors and leave it to the agent to provide the detailed advice.

Whether or not an agent is acting, you should remind the taxpayer of his or her obligation to maintain and retain full and accurate records of business income and expenditure CH10000+. Explain to the taxpayer that penalties for failure to keep and preserve correct and complete records can be charged EM4650.