Liability of unexplained payments

In May 2020 the first taxpayer Mr A was convicted of cheating the public revenue over the period up to 2012-13. This appeal concerned what if any undeclared tax liabilities arose in the years 2014-15 to 2015-16.

During those years Mr A ran his business through two companies which he controlled and partly owned. The second taxpayer his wife was a shareholder in both companies. She had been a director but resigned before the periods covered by the appeal.

Broadly after examining the couple’s bank statements HMRC concluded that various unexplained payments between the companies and the taxpayers should be attributed to self-employed income. HMRC had to work from the bank statements because it considered the accounting and other records of the two companies to be ‘incomplete chaotic and substantially unreliable’. It issued assessments and closure notices to assess...