EM2051 - Working the Enquiry: Claims of Non Taxable Sources: Introduction

Taxpayers may claim that deficiencies brought out by capital statements or cash tests, or money introduced into the business were funded from - the introduction, during the period of the enquiry, of capital held at the beginning of the period, (for example, a cash hoard or pre-trading stock, from the sale of jewellery, furniture or other personal effects) - non-taxable receipts such as betting winnings, legacies, gifts, loans and so on.

You should at an early stage in an enquiry try to pre-empt such claims by asking the taxpayer about matters such as cash accumulation, loans and gifts received and so on. If the claim is first made at a meeting you should question the taxpayer closely about it, before he or she has time to invent plausible circumstances to surround a false story. Such claims though may sometimes be true.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

Your grounds for resisting them will be strengthened greatly if you can produce alternative evidence to show that the declared profits may be wrong, such as inadequate record keeping or the conclusions of a business model.

For further guidance see EM2053+ and for specific advice on cash hoards EM2065+, betting wins EM2074+, legacies etc EM2095, illegal or immoral activities EM2097 and useful Tax Cases EM2100+.