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HMRC internal manual

Enquiry Manual

From
HM Revenue & Customs
Updated
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Recalculating Profits: Private Side - Capital Statements: Information from Bank Accounts

In a full enquiry where you are looking in detail at private assets and spending you should see statements or passbooks of all bank, building society and savings accounts, including e-bank accounts, as well as credit card statements. Paying-in slips, cheque counterfoils and returned cheques, where these are available, should be required where necessary. You should note down any points which require clarification for future discussion with the taxpayer.

The Framework for SA Enquiries and

CTSA Enquiry Framework

provide information on when it is considered appropriate to request private bank details.

While you should see passbooks or statements, the extent of your examination can be reduced if they have been examined by an experienced accountant who has investigated essential matters. However, you should still question the taxpayer yourself about any debits or credits, the nature or source of which require explanation. Even where cash banked in a private account is admitted to be undisclosed profits, it will usually still be worthwhile obtaining the taxpayer’s own observations on what occurred. (At the very least you will need to know what was spent without being banked).

You should always ensure that you have suitable copies of summaries of accounts before returning documents, as well as notes of what you have seen and done.

The main purpose of a detailed examination of bank and credit accounts is to ensure that all bank and savings accounts and other significant assets have been disclosed, to look for any unidentified lodgements which may be undisclosed business profits, and to collect information about personal spending. As well as the tests suggested in EM3560, you should consider whether

  • there are any gaps in the pattern of withdrawals, indicating use of another account or reliance on cash?
  • regular use of bank or credit card accounts, including large numbers of small items, may imply that large amounts of cash are not saved or accumulated
  • the amounts claimed to be spent on purchases of property, investments or other assets should be reflected in your total worth computation. How strong is the evidence that particular receipts represent sales of assets?
  • a claim that a life policy has matured, or a loan was received, can be traced to a bank account. If not what happened to the cheque?
  • income from investments reconciles with your capital statement? Does all income tie in with known assets, and are there any items of income which you would expect to see but which do not appear - if so where are they credited?
  • all regular payments such as mortgage, insurance, tax, etc appear? If not, how were they met? Similarly, can you trace individual items such as payments for holidays, cars, etc? Can any known cheque receipts be traced, for instance tax repayments - if not, what happened to the cheque? It may have been paid into an account of which you are unaware
  • there are satisfactory explanations for cancelled debit or credit items?
  • large debits identified as payments for particular items of personal expenditure, such as school fees, a car, holidays, etc, have related expenses (for example, school uniforms, currency, etc) and what the particular payment says about the taxpayer’s lifestyle.