Tax purge targets small firms

 

Small business owners are increasingly being ordered to hand over personal bank account details to Revenue & Customs as it embarks on a new crackdown on the cash economy.

Mike Warburton

The taxman is looking for money diverted from a business to evade tax. Explanations for sums in personal accounts, such as a win on the horses or the repayment of a loan to a relative, are sometimes not accepted without documentary proof.

In one case, a businessman's gambling success was disbelieved by the taxman, only to be accepted, in part, on appeal to Revenue commissioners.

'They are going straight for the jugular now to get the evidence,' said Stephen Herring, tax partner at accountancy firm BDO Stoy Hayward. Herring was referring to the hugely increased use of Section 20(3) orders, which oblige taxpayers to hand over their personal banking details.

'There is a purge on,' said Mike Warburton, tax partner at accountant Grant Thornton. 'The Revenue believes there is a big gap between the tax it ought to be getting and the tax it is getting.'

David Marples of tax consultant Abbey said: 'One client was assessed for tax on about £8,000 found in his personal account, which he said was the result of gambling. Admittedly, his records were not perfect and the Revenue assessed him for tax as if it had been earned income.

'We appealed and the commissioners stated they believed his evidence that he had, indeed, been a successful gambler and they reduced the assessment by half. The Revenue has been extending its inquiries into the private affairs of business people, looking at private bank statements that have nothing to do with the firm.'

When dealing with sole traders or people in partnerships, tax officials can effectively give themselves permission to demand private bank records. When dealing with the owner of a limited company, they need a Section 20(3) notice, signed by a Revenue commissioner.

Marples said: 'Up to eight years ago, I had never seen one of these notices. Now I see them quite often.' In one case, a businessman explained money in an account as having been routinely obtained by his wife as 'cashback' at Tesco.

Marples said: 'The Revenue threatened this notice against the man, his wife and against Tesco, to look at her Clubcard record to check on sums spent and sums obtained by cashback.'

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