EM1900 - Working the Enquiry: No Evidence of Taxable Source

Sometimes you hold information which indicates that the taxpayer has capital, but there is no obvious source and the taxpayer either fails to admit to any source, or provides an explanation which you are not able to accept.

If after critical examination of the taxpayer’s bank accounts for any indication of a source and also any local information you think might be appropriate, you still draw a blank, the table below tells you what you can do.

Circumstances	Action
The taxpayer is married to or lives with someone who is assessed under Income Tax (Trading & Other Income) Act 2005 or is a director of a close company.	You should assume that the source of the capital is gifts from that person, unless you are convinced that would be impossible. You should review the business persons or director’s file to decide whether or not such gifts could have originated from declared profits.
You are unable to attach the capital to a source, and the taxpayer has failed to produce an argument which you can reasonably accept to explain the capital.	You should critically review all potential sources of capital the taxpayer could have. There must be evidence to support the existence of both the source, and to reasonably infer that the source is linked to the taxpayer. It will then be up to the taxpayer to disprove the existence of the alleged source by identifying the actual source of the capital. If you cannot reasonably identify a source for the capital then you cannot make a discovery assessment.

Before making assessments or closure amendments you should take into account

• how the capital came to light in the first instance
• the taxpayer’s co-operation in the course of your enquiry
• the taxpayer’s explanation (or failure to explain) the source of capital and the quality of any evidence he or she has put forward, and
• whether or not the taxpayer has the opportunity, time, skills and so on to have another source of income.