My previous blog posting covered the points on the triggers of tax inspection. This blog posting covers inspection of your accounting records if the taxman decides to see all your accounting records. This includes bank statements, invoices, cheque stubs, paying in books, etc. It may also extend to items such as your work diary.
The issues revolving around this request are…
- You may prefer not to send them to the Inspector as this allows them to go through them at their leisure but ask for the to be inspected at your accountant’s office. It’s not normally recommended to have inspections at your own premises due to the opportunity offered to raise even more questions based on what the Inspector sees there.
- They are entitled to take copies of any documents and even take the originals away but you can argue you need them to run your business. The more they have to copy perhaps the less likely they are to take as many.
- Never, give them your records on computer disc as they have the technology to interrogate your computer records to raise even more questions. Always provide printouts.
- Never, make up false invoices or records retrospectively as they have the technology to date the ink.
- Many investigations arise when the Taxman doesn’t fully understand your business and perhaps why you make the profit margins you do. As a result the Taxman may start an investigation and start with asking to see all of your business records. If you give them to him you give control to the Taxman.
You could instead start by offering to explain to him your business and how it works which may reduce the necessity for him to widen the investigation into looking at your records.
- They can only ask for information that is reasonable (fair & sensible) so don’t let them overstep the mark. Sometimes, a request for private bank statements is reasonable and sometimes not, especially on the first request for records
The reasons the inspector wants the private bank statements are:
- He is looking for bankings that haven’t been taxed, particularly undeclared business takings. He is also on the look out for sales of assets he wasn’t aware of and may want to know where you got the money from in the first place to buy them.
- He may ask you to prove that all the income on your tax return, such as dividends is banked in your personal account. If not, this may mean there is a second undisclosed account around he would like to see!
- He will also use your private bank statements to build a picture of the regular payments that go out of your account to get an idea of your lifestyle and see if you can afford it on the income you have declared. This information will then be used to catch you off guard at a meeting with him.
- If he sees no cash withdrawals out of the account he may be suspicious as he may take the view no one can live without cash. However, you can get cashback in many shops these days on debit cards, state benefits could be paid to you in cash, or perhaps older children with jobs or your spouse have their own accounts that cash is got from for family use.
It is normally best to let the Inspector see the records first before meeting them otherwise you often end up with the Inspector wanting another meeting after they have gone through the records. Better to get it all sorted in one meeting if possible. That’s if you are going to have a meeting at all…