EM2701 - Examining Accounts: what will an enquiry involve?
An enquiry, whether an aspect or full enquiry, will involve examining the books, records or documents. These support the accuracy of the figures in the Return. An aspect enquiry will still entail looking at prime records to ascertain whether the figures under enquiry are accurate or not.
In any enquiry, it is wrong to raise matters on a piecemeal basis. You should only introduce new areas of enquiry arising from your initial findings. An aspect enquiry can develop into a full enquiry EM1905.
No proof of evasion
At the start of most enquiries, you will have no evidence of evasion. Even if we have identified a risk, it is important to be tactful in your handling of the case. You should not prejudge the issue. You must not suggest to the taxpayer that you are going to charge civil penalty before you have ruled out evasion. If you do this it could prejudice a criminal investigation.
Throughout the enquiry, you must be alert to the possibility that other taxes or duties may be at risk as well as IT or CT.
(This text has been withheld because of exemptions in the Freedom of Information Act 2000)
Not all enquiries will result in the discovery of omissions. You will begin with limited knowledge of what is going on and there will be occasions when a perfectly acceptable explanation emerges. It is important to close such cases down immediately. You should not pursue them in an attempt to obtain a small addition solely to avoid a 'nil' result.
Every business is different
Much of the work in any enquiry will involve an element of routine. What makes the work interesting, however, is that every case is different, because every individual and every business is different. The pattern of cases may tend to be similar, but each will require you to use your imagination in evaluating the facts and deciding on the appropriate steps to take. Often the unusual features hold the key. Above all, you must try to put yourself in the position of the trader or director. The more you can understand his or her conduct of the business, and the motivation and scope for any evasion, the better your chances of arriving at an appropriate result.
Introduction to accounts enquiries: arrangement of sections
EM2710+ looks in detail at full enquiries. Rather than try to impose an unreal chronology, and to avoid duplication, the guidance deals with different points separately.
There can be more than one correct way to handle a particular case, and many more wrong ways.
All enquiries will have a beginning, a middle and an end. Sometimes individual stages will not amount to much, especially if you do not receive any co-operation. Action should only be undertaken when it is appropriate. However, records examination will usually be necessary to show the unreliability of accounts and will often lead to the discovery of certain types of evasion. It will be rare to come across a case where it is not essential to interview the proprietor or director personally about the business and their private finances.
Similarly, where you believe there are omissions, you should select the method of recalculating profits you consider will produce the most reliable result. Showing that accounts are unreliable because of inadequate record keeping does not prove that there have been omissions. All you have done is to show the unreliability of the taxpayer's evidence as to the level of profit. You still need to produce your own evidence if you wish to substitute a higher figure.
The first section, overview of accounts evasion, looks at discrete points of an accounts enquiry, from opening the enquiry through to conclusion. In any case you should always be striving to decide which of the opportunities for evasion is open to the taxpayer, and how you can prove whether they have taken them.