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Company enquiry, Directors bank statements requested

Company enquiry, Directors bank statements...

Limited company, selected for an enquiry, (2008 year end)

HMRC asked for a meeting which was attended and then issued a letter asking for accounting book and records. After their review of the records they then asked numerous other questions but also asked for copies of the directors personal bank statements from 2005 to 2009 or for them to sign mandates so hmrc could request them from the bank.

We answered the queries hmrc raised but asked them to reconsider if they really needed the bank statements in light of the information provided in that letter. 

The 'tax specialist' at HMRC has now replied stating they beleive there are cash sales undisclosed in the accounts (client is adamant there are none) and quoted various sections of the enquiry manuals and has reiterated that the bank statements need to be sent in or they will obtain them formally.

2 questions really -

Firstly, is this normal procedure to ask for these personal documents so early in the enquiry?

secondly, is it reasonable to ask for directors bank statements for periods prior to the year under enquiry for the company? Anyone got experience of this as the questions/answers from HMRC seem to be standard responses.


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By Monsoon
20th Jul 2011 13:25

Reasonably required?

As I understand it, HMRC can only ask for things that are reasonably required.

How have they ascertained the cash sales? Have the records been broken? I know for a sole trader, personal accounts have to be provided if the records have been broken, but I am not sure how this extends to a Ltd. Broadly speaking, the directors personal accounts are nothing to do with the financial affairs of the Ltd, unless he routinely uses them for business.

You are allowed to ask they what their risk profile is, i.e. what they are looking for.

It sounds like a fishing expedition to me.

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20th Jul 2011 14:19

Closure notice?

The tax specialist at HMRC says he 'believes' that there are cash sales.  He can ' believe' what he wants, but needs to establish a basis and some evidence. Even if he does this then it is still a long leap to then be entitled to personal bank statements, which as the previous poster pointed out, are nothing to do with the company, especially if the records have not been broken, and from your post there appears nothing to suggest that they have.

Even if cash sales exist then so what.  It does not mean that tax is being evaded.  Are suppliers/staff/other costs paid in cash.  What does the cash account say, does it properly account for all cash? What about a turnover/vat reconcilation together with a margin % test against previous years/other businesses.   Do these indicate cash sales?

To satisfy yourself; and if you prepare the directors' personal tax returns, then might it be possible to do a quick review and see if there are any unaccounted for receipts?

Your clicent has co-operated and attended a  meeting and answered all questions.  There is no concrete evidence of understated tax.  have you consisdered requesting a closure notice as you believe that no additional tax is due and all reasoanble questions are answered/information provided.




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20th Jul 2011 14:31


have already said that they are looking for cash that has not been declared and might have been banked in private accounts. Following that logic the cash might have been banked anywhere not neccessarily in the directors accounts.

HMRC would not normally ask for previous bank statements unless they were pretty sure something was amiss.

I would certainly go through the statements with your client to make sure there is nothing untoward. Then if everything is ok I would give them statements of the year in question with explanations to all the bankings and tell them they will have to ask formally for any others.

However if, on going through the statements, you do find something then you should sit down with your client, quantify the underdeclaration, then notify HMRC or get rid.

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By asking
20th Jul 2011 15:05

I wish it was that easy

The client has said that there are no ommitted sales but is happy to provide hmrc with whatever they want. Although admirable, i think this will open a can of worms. For example if there is a cash deposit in 2008 which cannot be accounted for from reported income, is the client expected to recall where this was from - HMRC will simply attempt to tax it as undeclared income.

Thanks for the responses regarding the overall question of asking for personal records but - does anyone know the second point about the dates that HMRC are asking for, ie bank statements which dont relate to the accounting period under enquiry. I dont think this is reasonable at all even if after reading below you think bank statements should be sent in.

Reasonable? Its difficult for me to comment on whether the actual request is reasonable without some further thought. HMRC have primarily highlighted 2 issues which they believe provide evidence to them of undeclared sales.

 - recording of sales is not done on a numerical basis and therefore they believe this is open to abuse.

 - cash is not reconciled on a daily basis and when it is (this could be a week or so, sometimes more), any diff between cash in hand and that amount per the records has historically been taken straight to the directors loan account. The director accepts he takes this cash (as 'drawings') but has argued he is only taking cash that has already been recorded as sales.

Taking a step back therefore i do appreciate that HMRC think they have made a reasonable request due to the above factors but surely just these two factors alone dont point to a clear case of unreported income. In fact all unnaccounted for cash per the business records is posted to the directors loan account in any case so he needs to clear the balance, ie repay it to the company anyway.

The inspector has referred to enquiry manual 8502 and 8508 as justification for personal bank statements, then goes on to say

HMRC does not take the stance that all directors of close companies are concealing income, but the possibility exists should they wish to do so. This is by no means accusing; I must acknowledge the possibility and then subsequently eliminate the possibility by considering whether the declared income of 'the director' matches the income within the (personal) bank statements............... HMRC associate the apparant low income (of the director)........ with the possibility of supplementary income sourced from the company.

Its a catch 22 situation, dont provide and there is always the strong possibility the tribunal will accept they are required and a formal notice issued (with no hope of reduced penalties for being helpful if a settlement is required) - or - do provide and have items that arent related to omitted sales regarded as such due to a lack of information.




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20th Jul 2011 15:44

It's not really

a problem. If you want to take on HMRC you have to satisfy YOURSELF that all is well within the statements and the client will have to justify any deposits. Once you have done that and informed HMRC that's all they are getting, chances are you will get a closure notice thanking you for your help.

Of course you can go down the route of "on yer bike" but what then happens if your client is found out to be naughty.


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By asking
20th Jul 2011 15:58

On yer bike

That route does appeal, however its the consequences should the whiter than white client turn out not to be so that has made me think a little harder.

Great responses, thanks everso.

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20th Jul 2011 17:58

Who is to say

that if the client has been trousering undeclared cash sales that he would have banked them at all?  I am damn sure I wouldn't if I were that dishonest!

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By Top_Cat
20th Jul 2011 19:19

Make him prove his case

Ask him to specify EXACTLY what legislation allows him to demand personal information from directors, what legislation allows him to go outside the period in question, and exactly where in the legislation does it authorise him to breach Article 8 of the Human Rights Act.


Article 8

Everyone has the right to respect for his private and family life, his home and his correspondence.There shall be no interference by a public authority with the exercise of this right except such as is in accordance with the law and is necessary in a democratic society in the interests of national security, public safety or the economic well-being of the country, for the prevention of disorder or crime, for the protection of health or morals, or for the protection of the rights and freedoms of others

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By Tosie
20th Jul 2011 20:10

specialist advice

In 30 odd years I have never been asked for bank statements for any period other than that under review. It would appear to me that you are dealing with a very new inspector or the revenue know something that you do not.

As this could result in very serious financial implications for your client I would consider chatting it through with an enquiry specialist before proceeding.

I would point out that on personal tax enquires they do not need to find anything in the bank statements they just need to establish that your client did not have sufficent to live on. But ofcourse this is a company enquiry and if they don't get the bank statments they cannot prove that your client was living beyond declared means.

Personally I would only pass them over as a last resort. Somewhere on this site there are notes on handling tax enquries and this point is covered.

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21st Jul 2011 09:49

Whatever you do

or however you handle the enquiry YOU have to go through the bank statements with your client. If there is nothing untoward it will give YOU the confidence to move forward.

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25th Jul 2011 15:15

Lifestyle exceeding income?

Presumably the Inspector is not really expecting to find cash sales being deposited in a private account (and your client has assured you that he won't), but more likely evidence that the outgoings in his bank statements do not reflect the normal expenses and lifestyle of a person in his/her position or the assets that he/she owns.  But perhaps your client has a high-earning spouse or receives annual gifts from parents - I think the Inspector needs to come up with much stronger reasons to enquire further than he has done so far.

I agree that you need to check through the personal bank statements with your client - but definitely look at the expenditure side as well as the income and have a ready answer if you do end up having to let the Inspector see them.

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25th Jul 2011 15:50


Under the new information powers in Sch 36 FA 2008, HMRC can pretty much get there hands on anything that "is reasonably required to check a taxpayers' tax position".  That can be done the easy way, by asking for it, or the hard way, by using those powers.  So if they want it, and are likely to be able to show that they reasonably require it, you might as well give it to them.

However, the taxpayer whose tax position they're checking is the company and they're doing so in relation to a year-ending in 2008.  In checking that position I can see no reasonable interest in transactions outside that period.  They're out of time to enquire earlier unless they have a discovery, and if they want to look later, they need to enquire into a later period.

Limit their scope of their examination of these records to the period in question on the basis that whilst you and your client are keen to cooperate with them it is unreasonable to have a longer period examined resulting in protracted queries, unless they are able to demonstrate their assertions that there are undeclared cash sales by reference to records pertaining to the actual period under enquiry.

EDIT: PS If you do get a formal information notice under Sch 36 FA 2008, you need to appeal or comply, otherwise there will be penalties for non-compliance with the notice.

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25th Jul 2011 16:38

If there are

transfers from the Ltd company account to or from private account they will be entitled as they will pertain to that year.

In any event I would want to make sure my client isn't telling me porkies

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