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HMRC right to request private bank statements ?

Can HMRC request to see private bank account statements ?

My client, a sole trader, is undergoing a compliance check.  On providing the business records and in the interest of ensuring complete disclosure, attention was drawn to a small number of purchase invoices and an arithemetic error which had erroneously overstated expenditure.  These amount to less than £1000.  HMRC are now stating that this raises concern as to whether drawings have been recorded acurately and are requesting that my clients private bank account statements are made available to them.  Can they do this ?  

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13th Aug 2017 12:50

If the request is "reasonable", then yes.

http://financeandtax.decisions.tribunals.gov.uk//Aspx/view.aspx?id=8381

See pdf near the bottom of the page.

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to jimmyxyz
13th Aug 2017 20:20

Thanks for taking time to reply. I guess my question then is .. is pointing out a minor arithmetic error and a couple of double counted purchase invoices within 700 or so purchase invoices, error totalling less than £1000 sufficient to draw the conclusion that drawings may not be accurately recorded and therefore the request for private bank statements is deemed reasonable?

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By mrme89
13th Aug 2017 18:45

Do the operate a separate bank account used for business purposes?

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to mrme89
13th Aug 2017 20:28

Thanks for your reply. Yes. Separate bank account for business transcactions. And cash transactions in addition. Private bank account not used for business.

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By Tosie
13th Aug 2017 21:56

A lot of people will not agree with me, but I find as most clients just want the thing over with and in general if there is nothing to hide might as well let HMRC have what they have asked for. It is not amount of error but how and why that needs to be considered. If there is anything likely to pop up from private bank accounts and you are not experienced in this work I would suggest that you take advice from an enquiry specialist.

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to Tosie
14th Aug 2017 08:55

I agree. If there's nothing to hide then providing the statements is the fastest way to closure.

If there is something to hide then HMRC are fully justified.

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to Tosie
14th Aug 2017 21:46

Many thanks for taking the time to reply.

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14th Aug 2017 12:46

I'd say HMRC are entitled to ask, but then again I'd also say your client is entitled to redact those private bank statements so the only transactions visible from them are those relevant to the questions HMRC have asked, e.g. movements between the business and personal bank accounts.

If there are no "business transactions", i.e. sales or purchases, going through the private bank account you could argue that they don't form part of the statutory records and therefore HMRC have no right of unfettered access to them (there's a decent piece by Mark McLaughlin on that at http://www.taxationweb.co.uk/tax-articles/general/hmrc-powers-and-privat...)

All depends how much work you want to put in and how much of a fuss you want to kick up about it.

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to gilderda
14th Aug 2017 13:07

Do you honestly think that redacted entries are going to put HMRC's mind at rest?

If I was them, I'd be more interested in why those entries were redacted and what was being hidden behind them.

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14th Aug 2017 13:24

Let me tell you what is and isn't reasonable.

Reasonable:
1) HMRC correctly using a statutory power to visit business premises, take records (or copies of those records) from those business premises, and/or request information from a taxpayer and/or third parties, WHEN THEY TELL YOU THAT THAT'S WHAT THEY'RE DOING AND FOLLOW THE CORRECT PROCEDURE.

Unreasonable:
1) Just announcing that they're doing a "compliance check" and asking for information willy nilly. Whilst it may well actually be the same thing as above, the lines are now somewhat blurred.

2) Agents going along with this horse5h1t. Make them do their job properly.

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By gordo
14th Aug 2017 13:28

HMRC should be discouraged from such 'fishing' expeditions. It seems clear to me that they have used the first available opportunity to try and justify a reason to ask for private bank records. These are not part of the business records and HMRC have not 'broken' the records. Personally, I would resist.

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14th Aug 2017 13:30

Another consideration.

HMRC staff only have so much time available to work on an enquiry. If they use up that time looking at irrelevant personal bank statements, then you may find they spend less time looking into other areas.

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By gordo
14th Aug 2017 13:54

Portia has drawn my attention to a good point in the original query that I missed, in that you refer to a 'compliance check'. Have HMRC issued a formal S9a Enquiry Notice?

If not then I would go with Portia's suggestion on holding them to their statutory powers. Part of the point with a formal s9a Enquiry is that they get one bite of the cherry.

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to gordo
14th Aug 2017 14:01

Ooh, I actually missed enquiries off my little list of statutory powers. It should have been there. Most of their so-called compliance checks actually take place under their power to visit business premises and examine the business records held there. But then they think they can just turn it into an enquiry.

Part of an agents job, as far as I am concerned, is to hold them to task.

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to gordo
14th Aug 2017 21:52

Yes - they have issued a formal S9A notice.

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14th Aug 2017 14:49

What's the state of the bookkeeping?

I would've hoped that these duplicated invoices would have been picked up by noticing that they weren't paid or the creditor didn't agree with the statement.

From which I'm inferring that the records are in the range of poor to sh!te.

Still, that in itself wouldn't justify asking for the personal bank statements.

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