HMRC no statutory right to see personal bank account??

sunshinesadly

Greetings MSErs.

I've been looking into becoming a sole trader and see what sort of accounting package I should get. After some research I've worked out that nothing fancy is required - a basic income and expenditure sheet will suffice.

However I came across the following on a website called diyaccounting.co.uk:

"A sole trader does not have to operate a business bank account however if a business bank account is used then accounting records should be kept as the taxation authority, HMRC can ask to see details of the account. This inspection is to verify the transactions support the basic accounts produced. If a business bank account is not used then HMRC do not have a statutory right to view the sole trader personal bank account and that personal; account does not have to be a feature of the sole trader basic accounts".

Is it true that HMRC have no right to look at your personal bank account? That seems odd to me, surely they'd be interested in everything you've got?!

Lovelyjoolz

They have no statutory right to see your personal bank account, so they cannot verify what you submit as business accounts is correct.

Obviously, they will want to ascertain whether you are paying the correct amount of income tax or if you're fiddling your figures for tax avoidance, but if you refused to show them your bank account then they can't do that.

In all likelyhood, they would just respond by giving you a lousy tax code so that they can make sure you're paying SOME tax.

For you, it would be much easier all in if you had a separate bank account for your business purposes. It's just easier and cleaner that way and will help you when you compile your accounts because, with a sole trader, your bank account is pretty much your accoutns package.

sunshinesadly

Yes those are my thoughts exactly. Have a separate account and keep personal and business apart. I was just rather astounded to see that HMRC couldn't look at one's personal account. Clearly I think they have more powers than they really do!

longtimelurkersam

Oh and if you operate your sole trader account from your personal account you run a risk of your personal account being shut by your bank as they do not want you to do this, they want you to have an account where they can charge you.

You can easily get a free for X months account with many of the banks. If you receive a lot of cash/coins and you end up paying to make deposits, just deposit it to your personal account and then transfer it over online etc. No (or little) fees.

antrobus

Mmm...

Are they not aware of Schedule 36 of the Finance Act 2008? As in "An officer of Revenue and Customs may by notice in writing require a person (“the taxpayer”)—(a) to provide information, or (b) to produce a document, if the information or document is reasonably required by the officer for the purpose of checking the taxpayer's tax position."

Scarpacci

I'd be surprised if there was a legal distinction between my personal bank account and the business account I have as a sole trader. They're just different products from my bank, both of which are individual accounts. I don't see why a distinction would be made.

Pennywise

The tax inspector has the right to look at all business records, which include private bank accounts if business transactions have been put through a private bank account. This is the basic business record-checking procedure.

That's why most accountants recommend using a separate bank account for business transactions and NOT to mix business and private transactions through the same bank account. This doesn't mean using a business bank account - a second personal bank account is fine to differentiate, but as said above, check your bank's T&C's.

If the tax inspector "breaks" the business records - i.e. if he has reasonable grounds to believe that some business income is under-declared, then he has "reasonable" rights to investigate your personal tax affairs, which can extend to include all personal paperwork, including personal invoices, holiday bills, car purchases, mortgage applications etc etc. It's all a matter of what's "reasonable" for the tax inspector to ask for, which, of course, will depend on the circumstances of the case, what grounds the tax inspector has for doubting the business records, etc.

So, yes, given the right circumstances, the tax inspector can indeed demand sight of personal bank statements - BUT it's not automatic and not the default position - he would need to justify his request and it must be reasonable given the circumstances.