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HMRC internal manual

Enquiry Manual

HM Revenue & Customs
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Close Companies: Directors: Extending the Enquiry

Where the business records are shown not to be reliable or where the directors appear to have insufficient income and financial resources to fund their lifestyle and those of family members, you will normally need to extend a company full enquiry so that it covers the personal taxation and financial affairs of the directors. The enquiry into the company return does not also put the director’s returns automatically under enquiry. You could open an enquiry under TMA70/S9A into the director’s return if it presents risks in its own right. However, you may not be able to link the outcome of that enquiry to your CT enquiry. To extend your CT enquiry or link the outcome of a director enquiry you need to associate the director’s personal finances with your CT enquiry.

The tax affairs of the directors are already linked to the company by virtue of their employment but there is no automatic link between the directors’ personal finances and the company giving you by right access to the directors’ bank statements etc. in order to review their financial position. The power to obtain the directors’ bank statements etc. is contained in FA08/Sch36/Para2. Ultimately you may need to satisfy the tribunal that the directors’ bank statements etc. are reasonably required to check the company’s tax position. The fact that the directors are in a position to exercise power over the company to extract money or otherwise derive a benefit from the company allows you to argue that a link may exist and hence the directors’ private bank accounts are reasonably required. In practice you will need some reason such as the directors’ means appearing inadequate or inadequacies in the company records to have a reasonable case that a link may exist.

Where you are not in a position to associate the directors’ private finances to the company enquiry, only open TMA70/S9A enquiries into the directors’ returns where non company income source entries, or an apparent omission, presents clear risks. When you issue such a TMA70/S9A notice will depend on the particular circumstances of each case. The outcome of that enquiry may enable you to link the directors’ private finances with the company.

Inadequate means or capital accretions may enable you to associate the directors with your CT enquiry from the outset. Where you cannot reasonably associate the private finances of the directors with the company when you open the enquiry and they do not become linked by TMA1970/S9A director enquiries, it may be possible to establish the association in the course of your enquiry into the company. Even if no link on the financial side can be established the link on the employment side should be fully explored.

When, at whatever stage in your enquiry, the directors personal finances become linked with the company enquiry you should make it clear you will examine the company and the director(s) finances together (observing as far as possible confidentiality) and that you will consider all the facts when seeking any settlement.

If, there are apparent omissions from a director’s return and/or apparent means problem, you should ask the particular director to review his or her past returns for years where the enquiry window is not available.

Guidance on asking for the directors’ private bank accounts etc. in a company enquiry is at EM8211.