Extremely worried

by **juliaa999** on Mon Jul 19, 2010 10:00 pm

Hi,
We have owned our guest house for 4 years, now going into our 5th season and we have received a letter for a tax and VAT inspection. Our accounts the 1st and 2nd year are in a very poor state. Yr 1 £21K, Yr 2 68K, Yr 3 £89K, Yr 4 £98K.
Taxman wants specificly to look at Apr 2008 to Apr 2009 and the Vat man for the whole vat period we have been registered, just one and half years. We are so scared as not all the cash is accounted for as our accounts just dont add up. Some cash was used for ebay items as we had nothing in the bank at that time and some stock was paid by cash, I know now the money should have been banked and drawn out again..I feel such an idiot! Our proceedure is 40% is taken from guests credit card and they pay balance on departure, however, some balances are missing, some invoice slips missing. Although money banked coincides with our year end accounts. We now have our accounts all over the floor and just feel like giving up. I feel our only expaination is to tell the taxman our records are in a poor state, but how our records have improved throughout the 4 years. My wife is so scared and we just despair on what may happen to us. Can anyone give any advice?

by **jvenegas16** on Mon Jul 19, 2010 11:51 pm

The VAT will be a control visit. They make recommendations if they find that records are kept as they should be, but it is not the end of the world.

Regarding the tax, the letter should say what they want to look into: is it an specific enquiry or a general enquiry on the whole return? Penalties may apply, but co-operation and disclosure help. The key is that they are satisfied and right amount of tax has accordingly been paid.

Do you have an accountant or tax adviser? They should keep you right and give you support in this kind of situations, as I do with my clients. So far I have been quite successful in this kind of situation whenever a new client came to me with similar problems.

Don't panic, you have not done anything wrong, apart from not keeping proper records, but that doesn't mean that everything is wrong.

You will need to disclose information and give explanations for discrepancies and lack of records and how you accounted for them and how you made your entries in the tax return.

Regards,

Juan Carlos
juan@fiscalaccounts.eu

by **wamstax** on Tue Jul 20, 2010 12:15 am

If as you say your accounts agree with the bank and vice versa then clearly you will not have accounted for all the cash/deposits used to purchase matters. If the ebay purchases were wholly for business purposes then the problem may not be as large as you fear if you didn't claim the expenses. As Juan says if you have a tax adviser then really you should be gettign support from him/her at this stage. If they do not have the necessary experience to help you then I would suggest that eithr your accountant or yourself should seek the services of an experienced tax investigation specialist who will be able to assist you in getting matters resolved as efficiently as possible with least financial penalty as possible.

If you or your accountant would want advice on a proper one to one basis then please feel free to review some pointers on http://www.wamstaxltd.com

by **juliaa999** on Thu Jul 22, 2010 5:34 pm

Hi,
Thanks for both your advice. Now weve got over shock of taxman and Vat man, we have found the account to be fairly in order. I've Just spoke to a few people who have had tax inspections and the most important thing is that you MUST at least have a system in place that works for the tax man. Although our account for the first two years of trading are in a poor state, they have improved year on year. Our business is 95% internet based, therefore there is a paper trail to everything.. Deposits and balances. As I have said before, we think we have overbanked, therefore we will have to pay the difference on that amount alone. Main thing is we have a system in place when they arrive. The date was in August but now it should be september, giving us more time to show how good and tweeked' up our system is to date. Now working on the VAT records in the same way and principal is the same as above. I will post a comment to let all know how we got on.

by **wamstax** on Thu Jul 22, 2010 9:33 pm

OK well done that is the proper way - do not panic.

Will look forward to your next posting

by **juliaa999** on Mon Jul 26, 2010 10:43 am

Hi jvenegas,
Thanks for your previous comments... I meant to reply to say the tax letter is specifically regarding £12,700 which is our expendature. The year the tax man is looking at is Apr 2008 to Apr 2009. There is no problem showing receipts for this amount. The VAT man is looking at 1st Jan 2009 to 30 June 2010.

Do you know if the VAT man will tell the tax man about any shortfall in the VAt from May 2009 to 30 June 2010 even although the tax guy is coming to look at the period above? After painstakenly going through our records, we think we owe the VAT man around £1,500. If the tax man knows about the extra in VAT we have to pay, will he ask to see a further years accounts?

Many thanks for your help, very much appreciated.

Regards
Stuart

by **wamstax** on Thu Jul 29, 2010 6:47 pm

It depends on whether the tax man considers that the type of understatement found by the VAT man is likely to have arisen in the earlier period and may therefore extend the scope of his enquiry

by **juliaa999** on Fri Aug 06, 2010 12:25 pm

Hi,
Thanks for the information. Our accountant has told us he knows a floor manager at the tax office and that the tax inspectors are actually on bonusses for all they can find? True? This gives them an insentive to dig and find as much as they can to help their bonusses. However, as we have now been 'careless and prompted' with our accounts, we are volunteering tax and VAT and although there may be a few squid extra for them to find, we have offered the bulk amount. Once the case is closed they will only then get their bonus. I can see now why the tax inspectors squeeze every penny out of us honest, hard working (but careless) self employed businesses.

by **wamstax** on Fri Aug 06, 2010 2:49 pm

Your accountant is mistaken...... Ok staff in HMRC can get bonuses which of course like all the bankers and others bonuses are taxed. However the amounts of those bonuses are nto enough in my humble opinion to affect the treatment that would be meted out to you. Just imagine that bonuses are allocated in the HMRC on the approximate ratio of the top 10% of performers in the year and that they can amount to the princely sum of 1% of pay and then have tax deducted from them. Hardly enough to get somebody going out of their way to be any more intrusive in their actions than they would normally be.

Also do not pre judge how you will be treated by HMRC officers as you may be surprised that they are not all as inhuman as accountants would have them be. OK there can be a few bad apples in every barrel - and this is not desirable - but wait until you are under the cosh before bleeding or bleeting.