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HMRC internal manual

Enquiry Manual

From
HM Revenue & Customs
Updated
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Companies: Enquiries into Directors and Participators: Directors’ Returns and Concealed Income

Enquiry into a Director’s Return

You should neither open nor conclude an enquiry into the return of an individual director in respect of personal omissions unless the case owner responsible for the company tax return has given clearance. A settlement with one director alone may seriously weaken or prejudice the HMRC case, which will normally be against the company, if other directors’ affairs are subsequently found not to be in order.

However, where a director is dealt with by the High Net Worth Unit (HNWU) you should liaise with them before opening or concluding an enquiry.

Where you discover or suspect an omission or understatement of income in the returns of a company director or returns indicate a build-up of private capital inconsistent with known income, refer the matter to the company case owner. If the case owner decides to enquire into the company tax return, or considers that an enquiry into the director’s return should be opened before deciding whether to open a company enquiry, he or she must take responsibility for the director enquiries as well as any company enquiry. The case owner will co-ordinate the end of the company enquiry and linked director enquiries to ensure that no tax and other duties are omitted from both settlements.

Concealed Income

A director who becomes aware in the course of your enquiry into his return or the company tax return that you know of a concealed source of income could limit any disclosure to matters directly connected with that source. This could make it difficult to establish the full extent of the irregularities, particularly if the director becomes aware at an early stage of the enquiry. So for a close company, in particular, where the returns of the directors or participators do not include any profit-earning source other than the company, you should avoid prematurely opening an enquiry under TMA70/S9A or under the discovery provisions into their returns.

If, because of other risks present in a director’s return, an enquiry cannot be avoided the extent of that enquiry should be agreed with the CT Enquiry Team Leader before the linked director enquiry is opened. You should also agree with the Team Leader whether a company enquiry should be opened where the taxpayer with the concealed source is the spouse or the partner of a director or a major participator. An alternative is opening a TMA70/S9A enquiry with the aim of extending the enquiry into the company. For both options you will need to take care not to breach confidentiality. No assessment should be made on an apparent concealed source of income without the approval of the CT Enquiry Team Leader.