Discovery assessment re suppressed takings
HMRC have again been permitted to pursue a discovery assessment. In this case a routine VAT visit resulted in an HMRC officer becoming concerned that takings had been suppressed. She also had problems reconciling the cash position of the business as more cash was spent and banked than the takingsof the business.
The taxpayer initially claimed to have received rental income although this was not disclosed on his tax returns. It also transpired that:
• he had undeclared employment income; and
• was claiming tax relief for the capital element of loan repayments in addition to the interest he was paying.
There were also indications in the accounts that undermined their credibility. For example, recorded takings were always exact multiples of £10, whereas amounts banked were mainly not round sums.
Test purchases were made by HMRC staff, and a subsequent review of till rolls showed that not all of the purchases were recorded. The taxpayer then agreed to an invigilation period where he knew test purchases would be made by HMRC. Still there were omissions from the recorded takings.
HMRC then had a number of meetings with the taxpayer and his accountant in an attempt to reach agreement on the amount of additional tax to be paid. No such agreement was reached.
Assessments and adjustments to the self assessments were therefore made on the basis that £700 of income had been suppressed each week for each of the years under investigation. HMRC accepted that their figures were not precise, but argued that they were reasonable based on the available evidence.
The taxpayer failed to show that HMRC’s estimates were unreasonable so the discovery assessment was confirmed.