Enquiry cross overs

[rachelah]

I am increasingly seeing HMRC asking for personal tax records (bank statements etc) within a CT enquiry for periods where the personal tax enquiry window is closed and without using the discovery rules. They say this is because the director shareholders personal income and expenditure is inextricably linked with the company affairs via directors loan account and dividends. Can they do this or should we be pushing them to go down the discovery route?

[emdlaw]

When I was an inspector running CT enquiries personal bank statements were the holy grail. However, you can seek to distinguish a fishing expedition from what might be seen as a legitimate enquiry. If there are irregularities in the DLA then I think that there is a legitimate reason to see the personal statements. However, if there is not then really the Inspector has no defendable reason to enquire further.

That said, the Inspector may seek to argue that your taxpayer is not being cooperative in the enquiry which may count against him in the penalty loading.

What you may well see more of is cross overs between different tax streams i.e. VAT and PAYE

[wamstax]

In the past the Inspector might try his hand for the personal bank statements and if the tax adviser was weak he would surrender his client to unecessary personal stress and worry when they could not explain the small £200 that had been credited nearly three years earlier. In a company enquiry it is incumbent on the Inspector to point to inadequacies and irregularities in the company's financial and tax matters before jumping on to the private and personal transactions of each and every director.

If they haven't established anything wrong then politely tell them that you do not consider it relevant to be providing another parties documents when they have not established that anything is wrong with the company's tax return(s). However if they can point out any irregularities or errors that involve the director then you will discuss the voluntary provision of documents in a spirit of cooperation.

Remember though that you should really make sure that there isn't in fact company tax irreguularities that you should be highlighting to the Inspector at the outset as against acting in this manner.

http://www.hmrc.gov.uk/manuals/emmanual/EM8211.htm contains the HMRC guidance to its investigators in relation to these matters and perhaps a thorough review and consideration of this will give you some ideas