Introduction to this document

Key events chart

If you are subject to a personal tax enquiry, deposits on your bank account statements could be taken to be a second source of income by HMRC. Therefore, it’s a good idea to keep an up-to-date record of these rather than relying on your memory, or an expensive exercise by your advisor later.

Unidentified bankings

The most common verbal explanations for unidentified bankings, or deficiencies in income when compared with personal expenditure, are: cash savings, gambling winnings, legacies, loans and gifts.

HMRC will probe any such verbal explanation. Its internal manual gives guidance to inspectors on how to deal with claims relating to this type of income and advises that such claims “may sometimes be true” - which indicates the fairly sceptical approach you can expect.

Indeed, if you need to proceed to a tax tribunal, the burden of proof to substantiate such claims will rest with you, not HMRC.

Log unusual income

So each tax year you should review private bank statements to make sure that you have valid explanations for all credit entries. It’s probably a good idea to do this anyway when preparing/signing off your personal tax return. Ideally, log unusual sources of income on a Key Events Chart either at the time they occur or when you are completing your annual tax return. You then have a ready explanation for HMRC should it open an enquiry, without having to launch into a costly investigation exercise.