|
SA
ENQUIRIES 3
RECORDS
26.01.06
In
A full enquiry the Officer will inevitably wish to see
the business records. Section 19A, TMA 1970 gives him
the right to require them to be produced to him. But
"produced" does not mean "sent".
It means "bring forward for inspection". You
are entitled to produce them where you want (within
reason!).
For
a small business I usually prefer to send them to HMRC.
In some cases I will invite the Officer to my office
to review the client's records. Unless they are voluminous
I will not produce them at the client's premises. This
disrupts the client's business and let's his staff know
that he is under enquiry by the Revenue which is potentially
damaging to him.
I
invite the Officer to come to my office in particular
where I think that the records may need some explanation
and I would rather give it to him before he goes way
and starts drawing up questions, than have to answer
those questions later. In such circumstances I, or one
of my staff, will obviously be on hand to answer any
questions the Officer may have. I also of course make
my secretary available to him to photocopy anything
that he wants copied - and to do a spare copy for me
so that I know for the future what HMRC have on their
file.
Bear
in mind that HMRC are entitled to inspect the records,
not to keep them. If you send them to the Officer and
you or the client need access to them, you are perfectly
entitled to ask for them back after a reasonable period.
What is a reasonable period? That obviously depends
on the records, but if it only took you a day or two
to prepare the client's accounts how can it take the
Officer longer than that to check them? That is not
to say that you should ask for them back after a couple
of days. In most cases I do not ask for them back unless
and until the Officer raises detailed questions on items
shown in the records - as I do not see how I can answer
such questions unless I can see what the issue is. But
if the client wants the records earlier, I think that
four to six weeks is a reasonable time for the Officer
to have inspected them.
A
contentious point is often "link papers",
ie your extended trial balance and/or journal entries.
The Officer cannot reconcile entries from the prime
accounting records to the accounts without these. But
are these within the client's possession or power? Legally
it depends on what you were instructed to do. If you
were instructed to prepare accounts all of the records
you created to enable you to do so belong to you but
the accounts belong to the client. If you were instructed
to write up the books and prepare accounts your journals
will be part of the books and therefore belong to the
client.
Does
it matter? A lot of people resist requests for the production
of such link papers. I don't! I would far rather give
the Officer the reconciliation between the books and
the accounts than leave the Officer to guess the entries
and risk his setting off on a wild goose chase that
is going to involve both me and the client in a lot
of unnecessary work.
Another
bone of contention can be computer records. In some
cases the Officer asks for a disc, particularly in relation
to companies. Paragraph 27, unlike section 19A, enables
the Revenue to specify the form in which the information
is required to be provided. I believe that the reason
for this power is because they want to ask for company
records in electronic form. Why? Because they want to
apply an electronic audit program to them. This raises
an interesting question. My understanding is that many
large firms of accountants react to a request for a
computer disk by providing a print-out of all of the
information on the disk. If you do this you should ask
the Commissioners to decide whether a computer disk
can be reasonably required to enquire into the company's
return in circumstances where the Revenue already hold
in paper form the whole of the information contained
on that disk. Personally I would find it hard to answer
that question in the affirmative.
A
final point on records is that sometimes the Officer
will try to get you to concede things on the basis that
the records are inadequate so you cannot disprove his
guesses. Whether or not they are inadequate is obviously
a question of fact. The statutory requirement is to
keep "such records as may be requisite for the
purpose of enabling [the client] to make and deliver
a correct and complete return for the year" (s
12B(1), TMA 1970). It is not to keep such records as
the most officious or nit-picking Officer might look
for if he were determined to find something wrong with
the accounts. It is not even what the Officer thinks
is requisite; at the end of the day it is what the Appeal
Commissioners think is requisite in the light of oral
evidence from your client, as it is they who decide
whether to uphold or reject an HMRC amendment to the
return.
IN
my view, if I go to Manchester every Friday in the course
of my business there are no records that are requisite
for the purpose of enabling me to make a correct and
complete return. I can look up the fare on the internet
and multiply it by 48 (to exclude holidays) and that
will enable me to make a correct return. It is perfectly
proper to include estimates in accounts, provided of
course that they are estimates, ie considered views
of the probable transactions, not wild guesses. Accounts
have to give a true and fair view. This imports the
accounting concept of materiality. If estimates are
not material to the overall accounts there is no reason
why you should not include them in the accounts. And
there is no reason for HMRC to expect there to be records
to support an estimate, provided that it can be justified
in some other way.
See also:
SA
Enquiries 1 - Receipt on the Opening Letter
SA Enquiries 2 - Handling
Correspondence
SA Enquiries 4 - Meetings
SA Enquiries 5 - Section
19A & Para 27 Notices
SA Enquiries 6 - Going to
the General Commissioners
back to top
© Blackstone Franks
Barbican House
26 -34 Old Street
London EC1V 9QR
January 2006
|
