Spring 2003 Top Tip

When enquiring into business tax returns, the Inland Revenue often demands to see the private bank statements of its owners/directors. Before complying, advisors should first consider whether the Revenue are entitled to these documents, and if not whether it is in the best interests of those under enquiry to produce them.

Under self-assessment the Inland Revenue will, having formally opened an enquiry, issue an informal request for information. Only if not produced will they resort to their formal powers under S19A TMA 1970 for Income tax returns, or Paragraph 27, Schedule 18 Finance Act 1998 for corporate returns. This authorises them to require 'any documents, accounts or particulars that may be reasonably required for checking a return'. In their (now updated) internal manual, the Enquiry Handbook, at EH319 the Revenue stated that they believe 'in principle private bank statements can reasonably be required under S19A for the purposes of checking the accuracy of a tax return'.

This comment may well be the reason why Inspectors have often asked for private bank statements as a matter of course. In reality they are not necessarily entitled to them, and EH319 does go on to instruct Revenue personnel to 'consider whether to require them in each particular case'. Interestingly, the revised Inland Revenue Manual, "The Enquiry Manual" does state at EM3560 "you should not routinely call for them in the opening letter of an enquiry", and goes on to explain the particular circumstances in which an Inland Revenue officer might ask for them.

If a request for private bank statements is received, in each case consideration should be given to whether the Revenue can enforce their request, and if not, whether it is best to provide them anyway. There may be circumstances when it is advantageous to produce them, even though there may be no statutory requirement. This might be, for instance, if all transactions can be easily identified, and this is all that is required to close the enquiry down. Provision of these statements when not absolutely necessary, though, may lead to time consuming queries, with resulting disruption and costs, even when there is nothing wrong.

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