Introduction to this document

Enquiry - capital statement checklist

During an enquiry HMRC may require a so-called capital statement to be prepared. Preparing an accurate statement is important to settling the enquiry. Use our checklist to help you produce your capital statement.

what is a capital statement?

If there is difficulty in obtaining business records for earlier years, any attempt to recalculate omissions fairly precisely for individual periods will usually rely partly on the capital/income/expenditure reconciliation. A capital statement is prepared on the basis that an individual’s personal expenditure added to any increase/decrease in wealth during the period broadly equals total income during that period.

If personal expenditure taken with the movement in assets results in a total which is more than total declared income, HMRC will assume that the deficiency is undeclared business profits unless there is another satisfactory explanation. For more information on HMRC’s approach to capital statements, see section EM3580 of its enquiry manual.