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HMRC internal manual

Enquiry Manual

Examining Accounts: Cash-Flow Tests


Simple tests of the amounts of cash available for banking and cash expenses over relatively short periods can show that the entries in the business records are not correct and complete. They are particularly useful illustrations that something is amiss either to the taxpayer or to the tribunal.

Put simply, a cash-flow test in this context, is a comparison, over a short period, of cash banked or paid out to meet expenses with the amounts shown by the records to be available. (This content has been withheld because of exemptions in the Freedom of Information Act 2000)

While the cash-flow test may throw doubt on the accuracy of the records, it will not provide you with alternative figures for assessment. It may show that the records are unreliable but this does not prove that the profits shown by the accounts are necessarily widely different from the true amount.

An example of a cash-flow test showing ‘minus cash’ is given at EM2962, and of one showing a surplus at EM2967.