§ Mr. Spenceasked the Chancellor of the Exchequer what method is used by the Inland Revenue in deciding to conduct a full audit investigation of a small business enterprise; how many small businesses have been investigated in each of the last five years; what has been the average cost per firm investigated and the average tax collected following any such investigation; and if he will make a statement.
§ Mr. RidleyI assume that my hon. Friend has in mind the Inland Revenue's selective approach to the examination of trading accounts. A proportion are scrutinised for any necessary adjustments to the tax computations. A further smaller proportion—for the year 413W ended 31 October 1981 about 2.75 per cent. of unincorporated businesses and 0.6 per cent. of companies—are selected for thorough examination into the records and structure of the business because the Inspector is not satisfied that they necessarily reveal the true profits.
Inspectors use their considerable experience and training in the course of selecting accounts, and as well as direct evidence that accounts or returns are incorrect they will bear in mind the picture of the business presented by the accounts themselves as well as their knowledge of the taxpayer's other affairs as shown in his returns.
The following table shows in respect of the last four years (a) the total number of businesses whose accounts were selected for thorough examination; (b) the total of these where no adjustment was made; (c) the total number for which a settlement was made without interest and/or
Year ending (a) (b) (c) (d) (e) (f) Total investigation Cases where no adjustment Cases settled without interest/Penalties Cases settled to include interest/penalties Average yield cases in (c)£ Average yield of all cases where interest/Penalties taken £ 31 October 1978 48,235 10,218 32,193 5,819 377 2,684 31 October 1979 47,353 8,680 31,651 7,022 447 2,983 31 October 1980 45,919 7,151 30,889 7,879 533 3,560 31 October 1981 51,512 6,769 32,589 12,154 599 4,193 Note:
Column (f) is the average of tax, interest and penalties for all cases where interest and penalties were taken; it is not possible to isolate the yield from accounts investigations only.