HMRC Enquiry

Is this allowed

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I have a client under review by HMRC , and have received the following request 

"As both director’s private financial bank accounts have been used, these have become part of company’s statutory records. Please forward both director’s personal bank statements from 01 July 2021 to the period ended 30 June 2022."

Is this allowed ?

 

Replies (16)

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By Paul Crowley
07th Jun 2024 11:48

There are allowed to ask
I would refuse the requests.

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Replying to Paul Crowley:
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By samnico
07th Jun 2024 12:03

Thank you Paul, I was thinking the same, but how could I reply , politely ?

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Replying to samnico:
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By Paul Crowley
07th Jun 2024 12:22

It depends.
Never been asked on a company for personal bank accounts.
But if company income went to the director's personal accounts and not to the company bank account then the directors knowingly volunteered for this problem.
Figure out why they are asking and consider what you would want were you to be the person doing the enquiry.
How much of the company activity took place outside of the company bank accounts? If it was both parties every month then clearly the directors did not make any attempt to maintain proper records.

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By johngroganjga
07th Jun 2024 12:15

What do they mean by saying that the bank accounts have been “used”?

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Replying to johngroganjga:
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By samnico
07th Jun 2024 12:18

They are stating that as there is a directors loan account , where the director has paid for business expenses personally , they'd like to see the personal bank accounts.

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Replying to samnico:
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By Paul Crowley
07th Jun 2024 12:32

Were there any invoices?
How many payments per month?
This sounds like a rubbish admin job I had 25 Years ago
The directors paid everything from their own accounts, including Corp tax.
Money came in to the company and next day paid out to the directors.

In fairness, HMRC are looking to confirm these are real company expenses, not make up stuff and estimates.

Are they claiming for Mobile phones that are not company mobile phones?

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Replying to Paul Crowley:
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By samnico
07th Jun 2024 12:39

There were small amounts of expenses , business subscriptions that were paid from the personal bank account , that perhaps they are asking about, but generally all income and business expenses were paid through the company bank account , which is why I'm curious as to why they are asking for personal bank statements..

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Replying to samnico:
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By Paul Crowley
07th Jun 2024 12:54

If that had been part of the opening post, with perhaps £s involved , regularity and expense type then you would have better aimed answers, rather than questions.

I would just list and date them and confirm that you have seen the statements the expenses were paid from.

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Replying to Paul Crowley:
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By RetiredTax
07th Jun 2024 12:41

+1
And if so - (IMHO) -- I think they gave a reasonable argument for requesting sight of the personal bank A/cs

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Replying to samnico:
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By Truthsayer
07th Jun 2024 12:40

HMRC would have to show that the personal accounts have become in substance part of the company's statutory records. That depends on how much and for what purposes they were used when dealing with the company. From what you say above, that threshold has not been reached. I would refuse the request unless HMRC can show reasonable grounds. The reason they are asking is very likely just routine fishing. They often try it on like this.

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Replying to samnico:
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By More unearned luck
07th Jun 2024 13:00

Based on the extract quoted, HMRC's justification is merely that the bank a/cs have been used. So What? If HMRC's request/demand is otherwise lawful you shouldn't correct their mistakes for them. But perhaps their meaning is plain from the context.

Is there an enquiry? Have HMRC issued a sch 36 notice? Do your clients what to volunteer the bank statements to keep HMRC sweet (helpful if penalties arise). But you would think HMRC would be looking for company money banked personally in which case their rationale stinks.

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By ireallyshouldknowthisbut
07th Jun 2024 12:57

One common approach would be "Do the directors have anything to hide?"

If not, comply
If so, dont

Which is the problem with not complying......it will be assumed you have something to hide.

If its just some regular expenses, then I would consider some redacted statements for a month or two albeit this begs the question "who is being supplied, exactly?" Ie who's name is on the invoice?

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Replying to ireallyshouldknowthisbut:
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By Paul Crowley
07th Jun 2024 22:11

That would be my approach.
Look at them and then decide.
Redacting is a bit difficult and HMRC are likely to wonder what is being hidden, so not a good idea to redact income.
I would prefer proper monthly statements, that look like the type that are sent in paper.
If client tries to get a year's worth on line, then the first page is the only one with identity on it.

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By richard thomas
07th Jun 2024 13:21

What is it that might not be allowed? If it is the request by HMRC then they are allowed to request anything they like, and you are allowed to refuse to do what they ask. If you mean can they enforce compliance with the request in the sense of imposing monetary penalties for failing to supply the statements, they can, but only following the issue to the appropriate person of a valid notice under Schedule 36 to the Finance Act 2008.

I say "appropriate person" because there is a distinction between 1st party and 3rd party notices (eg a 3rd party notice, if not agreed to by the 3rd party, can only be given with the FTT's approval). As the enquiry is into the company and HMRC are saying that the statements are part of the statutory records of that company then I assume they would issue a notice to the company.

That notice to produce the directors’ bank statements would be valid only if:

• the statements are reasonably required by the officer for the purpose of checking the company’s tax position (paragraph 1(1)(a) Schedule 38)
• the statements are in the company’s possession or power (paragraph 18 ibid.)

I doubt if they are in the company’s possession. So the question arises as to what power the company might have to obtain the statements from the directors. That may be a matter for the Mem & Arts, though I find it difficult to believe that most such articles cover the question of access to directors’ property so as to give the company the power to obtain them. It might depend on what information the statements show about the activities of the company as distinct from the activities or actions of the directors.

There are of course record keeping legal requirements on a company in s 386 of the Companies Act 2006, which defines what accounting records every company must keep, but I doubt if they include the directors’ personal bank statements.

The point, and the only point, about “statutory records” is a secondary one – the distinction between documents that are statutory records and those that are not but fall within paragraph 1(1) is that no appeal can be made against a request for statutory records.

“Statutory records” means (relevantly) a document which the company is required to keep and preserve under or by virtue of the Taxes Acts.

Paragraph 21(1) and (5) Schedule 18 FA 1998 which sets out what records a company must keep to enable it to deliver a tax return is in the “Taxes Acts”, but it doesn’t purport to give the company a power to obtain the director’s personal statements or to record what’s in them.
If HMRC want the directors’ bank statements it seems a more logical and proper way of enforcing their production would be to make a third party request of the directors. But they need the FTT’s permission for that and would have to explain why they thought the information in them was necessary for checking the company’s return. From personal experience of both seeking such notices (under s 20(3) TMA) and being a judge before whom the applications came, I can tell you it is no rubber stamping exercise.

This is not intended as advice to you about how you should advise your client.

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Replying to richard thomas:
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By kim.shaw-and-co.com
07th Jun 2024 23:37

richard thomas wrote:

What is it that might not be allowed? If it is the request by HMRC then they are allowed to request anything they like, and you are allowed to refuse to do what they ask. If you mean can they enforce compliance with the request in the sense of imposing monetary penalties for failing to supply the statements, they can, but only following the issue to the appropriate person of a valid notice under Schedule 36 to the Finance Act 2008.

I say "appropriate person" because there is a distinction between 1st party and 3rd party notices (eg a 3rd party notice, if not agreed to by the 3rd party, can only be given with the FTT's approval). As the enquiry is into the company and HMRC are saying that the statements are part of the statutory records of that company then I assume they would issue a notice to the company.

That notice to produce the directors’ bank statements would be valid only if:

• the statements are reasonably required by the officer for the purpose of checking the company’s tax position (paragraph 1(1)(a) Schedule 38)
• the statements are in the company’s possession or power (paragraph 18 ibid.)

I doubt if they are in the company’s possession. So the question arises as to what power the company might have to obtain the statements from the directors. That may be a matter for the Mem & Arts, though I find it difficult to believe that most such articles cover the question of access to directors’ property so as to give the company the power to obtain them. It might depend on what information the statements show about the activities of the company as distinct from the activities or actions of the directors.

There are of course record keeping legal requirements on a company in s 386 of the Companies Act 2006, which defines what accounting records every company must keep, but I doubt if they include the directors’ personal bank statements.

The point, and the only point, about “statutory records” is a secondary one – the distinction between documents that are statutory records and those that are not but fall within paragraph 1(1) is that no appeal can be made against a request for statutory records.

“Statutory records” means (relevantly) a document which the company is required to keep and preserve under or by virtue of the Taxes Acts.

Paragraph 21(1) and (5) Schedule 18 FA 1998 which sets out what records a company must keep to enable it to deliver a tax return is in the “Taxes Acts”, but it doesn’t purport to give the company a power to obtain the director’s personal statements or to record what’s in them.
If HMRC want the directors’ bank statements it seems a more logical and proper way of enforcing their production would be to make a third party request of the directors. But they need the FTT’s permission for that and would have to explain why they thought the information in them was necessary for checking the company’s return. From personal experience of both seeking such notices (under s 20(3) TMA) and being a judge before whom the applications came, I can tell you it is no rubber stamping exercise.

This is not intended as advice to you about how you should advise your client.

Very well explained there - and the point in relation to company expenditure met by a director and credited to a director's loan/current account on the company's balance sheet is that what the company needs is limited to the relevant purchase invoice and a decision by the director to make an advance to the company by way of settlement on the company's behalf.

Put another way, do you typically ask to see your employees' bank statements proving they paid for amounts included in an expense claim for which a receipt or invoice is provided ? I seriously doubt it, and provided the credits to the directors' current account are substantiated by receipts or invoices for the goods and services procured for the company that ought to be sufficient - in my view at least.

It sounds like a classic fishing expedition, and their assertion that by a director meeting a business expense for the company alongside extension of credit to the company their underlying personal financial records have become part of the company's business records simply doesn't stand up to scrutiny.

The necessary business records for company expenses met this way are :

- the entries in the director's current/loan account
- the underlying purchase invoices / receipts for goods and services procured to substantiate relevant credits made and
- the director's confirmation that he/she/they extended credit to the company as a result of meeting those expenses directly or indirectly on the company's behalf.

Directors' personal bank statements don't feature anywhere in that list.

OP hasn't elaborated on the nature of the Compliance Check, and it would be helpful to know if this is a PAYE/NI compliance check or a Corporation Tax check. If the former they ought to explain their reasoning for requesting personal information from a third party. If the latter I cannot see any obvious reason other than a straightforward fishing expedition which ought to be relatively straightforward to put a stop to ?

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Ivor Windybottom
By Ivor Windybottom
07th Jun 2024 13:25

My view is to always try to limit the enquiry to address the risks that HMRC wish to check.

It may be prudent/necessary to provide statements (potentially partly redacted) if HMRC are checking that relevant business expenditure has been incurred (i.e. the payments are not remuneration), but I would ask HMRC to clarify precisely the risk they are checking as this may limit or change the information that needs to be produced.

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