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HMRC internal manual

Enquiry Manual

Recalculating Profits: Private Side - Means Tests: Uses

A means test is a simple calculation of the amount available for living expenses, usually based on a limited number of facts. Its principal use is as one way of determining whether further enquiry is necessary. The situations in which you might prepare a means test are

  • as part of the initial risk assessment process. (This content has been withheld because of exemptions in the Freedom of Information Act 2000)  
  • in the course of the enquiry to consider the adequacy of a taxpayer’s means
  • to help to discredit the business records. A low balance casts doubt on the accuracy of the drawings figure. If drawings can be shown to be inadequate then the business records may not be reliable.
  • to demonstrate the destination of additional profits indicated by a business economics exercise. It is likely that the additional profits have been used personally by the taxpayer. Adding them to the available balance may make the new balance more credible.
  • when you consider if an irregularity in a close company director’s affairs, such an omission of interest may warrant a full enquiry into the company
  • as part of the examination of form 919 which gives particulars of the estate of a deceased person.

A means test might be used as further evidence to show the unreliability of declared figures, or to support Revenue amendments or discovery assessments in a case where there has been little co-operation. It will rarely be sufficiently complete to rely upon as the principal tool for recalculating profits.