EM3560 - Recalculating Profits: Private Side: Private Bank Accounts

No full private side examination can be undertaken without access to private bank account statements. Be sure to ask for copies or printouts of any e-bank accounts. You should not routinely call for them in the opening letter of an enquiry EM2221. Exceptional circumstances might be a voluntary disclosure of undisclosed business receipts into a private account. As your enquiry develops, if it becomes clear that the business records are not necessarily reliable, your need to see the private statements becomes greater. For example, you may find that drawings have not been fully recorded and you will need to see the private bank account statements to satisfy yourself that these are consistent with declared drawings, and other information provided.

You may be told that private bank account statements have been destroyed or are no longer available for some other reason. The taxpayer may be able to obtain duplicate statements or other information from their bank, this would be free if they have an e-banking facility, but the charge made by the bank for this service can be high if not, particularly where a lengthy period is involved.

You should always consider whether it is essential for you to see the statements or receive the other information for the whole of the period straightaway. You may be able to restrict your request to a suitable sample period or consider a later period. If you are satisfied after your review of the sample period, there will be no need for the taxpayer to incur additional costs on providing information for the rest of the period. If your review has not resolved your concerns, you will have further evidence to put to the taxpayer to support any decision to extend your review to the rest of the period.

Before undertaking any specific tests, you should look at the statements generally. Is there a pattern to spending habits? Are there any indications of transfers from or to other accounts? You might not know of these accounts, and you will probably want to see them. Transfers to or from a partner’s or spouse's account confirm that his or her personal finances are linked to those of the person under enquiry, and should therefore be brought into the enquiry.

You should also examine the receipts for lodgements which are not recorded withdrawals from the business or which seem inconsistent with the drawings figure in the accounts. Many will have a perfectly acceptable explanation, but some could be diverted from the business.

(This text has been withheld because of exemptions in the Freedom of Information Act 2000)

You will have to look in greater detail at the private bank accounts if you are preparing capital statements EM3593.