Tax Investigation

Tax Investigation

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I am dealing with a tax investigation and sought advice from one of the top 10 firm of Chartered Accountants regarding management of this investigation. During our conversation, I was given to understand that the taxman is not entitled to personal accounts, credit card statements etc of an individual or director, provided none of these documents was used in compiling the accounts in the first place.

I have always been under the impression that the taxman can ask for access to any documentation even if it is not used in preparing the accounts. Is this correct?

The other question is that the taxman is trying to link the affairs of a director to that of the company. The taxman agreed in his letter that he has only found one item which was for hospitality claimed, in all other respect, he was satisfied. He has however refused to issue a closure notice until in his words the personal investigation to one of the director's affairs who also happens to have a self employment income is concluded. There are three directos in total in the company. Is he enitlted to do that?Is the taxman entitled to ask for private bank accounts, credit cards etc which were not used to prepare the accounts?

Is the taxman within his right to leave an investigation open a until the conclusion of one of the company's directors investigation been concluded? He has not produced any evidence apart from his suspicion to support his position. He found hospitality claim of about £700.00 which had been claimed and is not related to this director personally.
Sandy Ogunbote

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By User deleted
07th Jan 2005 17:50

The Law and Revenue Operational Parameters
The previous two answers are fine in the context of an SA enquiry (in contrast to some of the comments you appear to have had from the large firm of accountants).

You can certainly refer such a case to the commissioners and request that they order the inspector to issue a closure notice (see TMA 1970 S28A(4) to (6)) but that may not be the end of the matter because you may then have to appeal against the amendments that he/she makes to the SA.

However I would point out that many people appear to confuse the Revenue's instructions vis a vis operational parameters with the law and the boundaries imposed by the law. The two are not necessarily the same thing. Clearly the Revenue's instructions must ensure that the inspector complies with the law but they often restrict the inspector to a course of action which is less than the law would allow. If the inspector goes beyond his instructions he may still be within the law.

The taxman mat be instructed in normal circumstances not to request access to personal details in the first instance but the law itself does not impose such a boundary. The law entitles the inspector to ask for such detail under TMA S19A (and the company equivalent) or under S20(3) (in the case a of a director in his capacity as a third party holder of information relevant to his company's tax SA return - namely his personal bank accounts). In the former case the taxpayer has a right of appeal but must establish that the inspector's request is unreasonable. In the latter case not only does he not have a right of appeal he is not even entitled to be heard at the meeting between the Commissioner and the inpsector when the inspector requests permission to issue a S20(3) Notice.

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By User deleted
08th Jan 2005 12:08

In fact

the legislation places absolutely no restriction on what an officer of the board may ask for.

Restrictions only come into play when a formal notice is issued or requested.

So many will simply ask for all that they can think of and then restrict that if they need a notice.

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By User deleted
07th Jan 2005 12:55

Strictly...
If the Inspector wants access to the individuals records he should not hold up an enquiry conclusion into the company. After all the company has no control over this individual's actions.

However, it is usually in the interests of all concerned to just provide the information requested as the Inspector is likely to be more suspicious and open as many enquiries as he can into the individuals and companies if he is not satisfied that all is well. If he has the right to request this information under a different enquiry then it is a only a time-wasting and Inspector-annoying tactic not to comply.

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By andymeeson
06th Jan 2005 10:51

There are some conflicts between theory and practice.
"I have always been under the impression that the taxman can ask for access to any documentation even if it is not used in preparing the accounts. Is this correct?"

Strictly, no. The Inspector can only call for documents which are "reasonably require[d] for the purpose of determining whether ... the return is incorrect or incomplete".

In practice, however, the Inspector will almost always call for private bank statements etc - usually quite early on in the enquiry, despite published IR policy that such requests should never be used as a first resort.

As a defence against this, the taxpayer has a right of appeal against excessively wide requests for info: unless the Commissioners accept that the Inspector's request is genuinely reasonable, it will be denied. How much of a safeguard this is in practice will depend on the attitudes of the local panel of Commissioners.

"Is the taxman within his right to leave an investigation open a until the conclusion of one of the company's directors investigation been concluded?"

Again, strictly no. The Inspector should only keep the investigation open if the other mattters are (or can reasonably be expected to be) directly material to its conclusion.

In practice, of course, many Inspectors will delay closing an enquiry in case something turns up... The taxpayer can apply to Commissioners to force the issue of a closure notice - strictly the onus is on the Revenue to show that there are "reasonable grounds" for keeping the enquiry open. Once again, though, the outcome will depend on the attitude of the local Commissioners. Some are more independent-minded than others.

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