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BKL Tax comments on a recent change to HMRC guidance regarding requests for private bank account information.

Introduction

For as long as HM Revenue & Customs (HMRC) have had powers to require production of documents there have been arguments about what they are entitled to see. In particular, views have differed on the circumstances in which private current accounts are legitimately open for HMRC inspection, ranging from "Never - they're private and nothing to do with my tax" to "Always - they might contain undeclared income or gains".

Previous Guidance

Until recently, internal guidance published by HMRC (at CH223400 et seq.) contained a reasonably balanced assessment of the factors to be taken into account in deciding whether a demand to see private bank accounts could be justified. Of course, there might be differences in views as to the application of those factors to any particular case, but at least the principles were laid out openly and reasonably fairly:

"The over-riding test is based on what is reasonable (that is, fair and sensible) in the circumstances."

"The fact that correctly and contemporaneously recorded business drawings were deposited in a non-business account is not sufficient reason alone to request the details of that account."

"In determining whether a request is reasonable you should consider factors including those listed below before making a request or issuing a taxpayer notice. As you must have grounds for the request which would satisfy a tribunal you should therefore consider any objections from the taxpayer or agent before the taxpayer notice is issued".

New Guidance is Less Helpful

Last month, however, HMRC rewrote their guidance in this area. In place of the balanced discussion of the particular difficulties and sensitivities affecting requests for private bank statements the new guidance contains ..er.. nothing. Zilch. Diddly-squat. It's heavy on what rights HMRC have but distinctly light on the need to be "fair and sensible".

Where Does This Leave the Taxpayer?

Does that mean that there are now no limits on what HMRC may legitimately demand? Absolutely not: it remains the case under the law that information must be "reasonably required" for the purpose of checking a person's tax position; and what is "reasonable" depends on all the facts of a particular case. Plainly, what was unreasonable before 21 March (when the guidance was sanitized) remains unreasonable after 21 March: it's just that you might now have to be firmer in reminding HMRC that taxpayers have rights too.