EM1840 - Working the enquiry: meetings: preparing for the meeting - planning for meetings involving a business enquiry

How do I prepare for an initial meeting involving a business enquiry?

When preparing for a meeting involving a business enquiry it is not sufficient just to think broadly about issues such as how the business is run, or what is spent each week. There will be key questions, which you will have to find answers to.

The first meeting is particularly important. It will set the tone for the enquiry. In many cases it will be the only meeting you need.

Unless you have information about specific understatements, your objective at this meeting will be to check whether that the profits have been correctly returned, or, to work out the extent of any inaccuracies.

What questions do I need to ask about the business?

You will need to ask questions that will help you establish the relevant facts about the following matters, which will be needed to support your examination of the business records.

The running of the business

1. You will need

  • to know how the business operates and how it is managed
  • to consider the potential opportunities for diversion of business income and whether this might have occurred.
  • sufficient information to prepare a business model if you have established that the returned profits have been produced from unreliable records.

2. The record-keeping system

You will need to know

  • who completes the records and accounts (both on computer and manual systems),
  • how often they are written up, and
  • whether there are any records, especially prime and non-financial records, which you or the agent have not seen.

3. The taxpayer’s private finances

In a full enquiry, if you have established that the returned profits have been produced from unreliable records, you should explain the link between the business and the proprietors or directors private financial affairs (the private side). There are likely to be irregularities if drawings have been estimated or are a balancing figure, and generally their level is apparently low.

If this is not the case, and you have no doubts about the accounts, you will not need to consider the private side.

Otherwise you will want to know about

  • the extent, of the taxpayer’s assets, including those owned by minor children.
  • personal and private expenditure, if not in detail, then in sufficient depth to provide you with an idea of the general level of expenditure and any major exceptional items.

4. Explanations about, turnover, profit margins, business expenses, wastage and so on

Your approach should be towards precise quantification of all these figures in the return. You should, where possible, explain what is anticipated in the specific trade or profession and put questions to the taxpayer requesting explanations for any concerns arising from the accounts and records.

How do I prepare for any inaccuracies and omissions identified during a records examination and meeting?

It may become clear during a records examination or meeting that there are possibly significant and culpable omissions or inaccuracies in the accounts or returns. If the taxpayer is not represented, you give them the opportunity to consider obtaining professional assistance. If they decide to employ professional assistance, discussions should be broken off so that they can be resumed in the agent’s presence.

Irrespective of the size of the inaccuracy or omission, as soon as you identify the inaccuracy or omission you must give the taxpayer

  • the Human Rights Act (HRA) message in factsheet CC/FS9, which explains the taxpayer’s rights, including the right to apply for publicly funded financial assistance, see EM1375,
  • a copy of factsheet CC/FS9, and
  • a copy of the relevant penalty factsheets.

You should then ask them to confirm that they understand their rights and answer any question they may have. You must also make sure that you record this and the taxpayer’s response in your notes.

You will then be able to demonstrate at a later stage, that you took all reasonable steps to safeguard the taxpayer’s interests and explain their rights.

You should then explain the benefits for the taxpayer if they decide to continue to co-operate with us and how we may reduce any penalties, making it clear that it is their choice.