Seriously flawed bookkeeping

by **dpuney** on Thu Dec 16, 2010 11:36 pm

Hi folks,

I am ashamed to be posting this but feel the need to do something about it immediately - so would appreciate your advice:

I've been Self-employed and VAT registered since Jan 2007 and have always filed VAT/tax returns myself [I've never had an accountant]. In the beginning, I had a very relaxed and amateurish approach to bookkeeping: I never kept receipts, binned invoices and helped myself to cash from the business without a paper trail. Some were legitimate business expenses: others not so. Infact, for several months, there was no bookkeeping at all! I would say all quarterly VAT returns filed in the years 07/08/09 were incorrect with guesses made for some values. To make matters worse, the business has always operated at a loss so I've always filed nill tax returns.

The very little accounts I do have for those years doesn't include legitimate expenses I actually incurred e.g. office space, International business trips etc. But even if all those were added, I feel I still owe HMRC monies.

Luckily, I have all my bank statements. I want to put things right before I am due a TAX/VAT visit and have braced myself for hefty VAT and possibly TAX repayments. However, deciphering these bank statements that go back to 2007 is difficult in the absence of invoices, receipts and other paperwork. Looking at some of these transactions [which were business related], I know I wouldn't be able obtain receipts.

For 2010, I became the new 'me' and made changes: all receipts and invoices can be reconciled with bank statements. I haven't been visited by the VAT/Tax man yet and am keen to get things straight. I would sincerely the community's advice on what I should do.

Much appreciated.

by **pawncob** on Fri Dec 17, 2010 11:27 am

If the business was operating at a loss, what were you living on for those three years? So let's assume you made a profit.
The chances of a VAT control visit are remote. The chances of a HMRC compliance check are ten to one.
You are now on the straight and narrow and you have to decide whether you voluntarily inform HMRC of the past misdemeanours.
Only you can judge how far adrift your returns actually were. If it is a significant amount you may want to inform HMRC just to avoid the (remote) chance that they could discover the errors by a different route.

If the amounts involved are small, it probably isn't worth the trouble of going back over incomplete records and attempting to re-write history.

by **dpuney** on Tue Dec 21, 2010 2:40 pm

I would say the discrepancies amount to <10k per year which is a very large amount to just ignore. What makes matters worse is the cost of putting all this right will no doubt be in the hundreds [if not thousands] - money i don't have. Having trawled these forums for answers, I think my best bet would be to contact a 'forensics accountant' - any other suggestions?

by **pawncob** on Tue Dec 21, 2010 3:52 pm

You don't need a forensic accountant, that's a VERY specialised field. Any competent accountant can make up accounts from incomplete records- that's what we do (all too often).

by **jugga** on Tue Jan 18, 2011 3:21 pm

Ok - your confession is accepted! lol. But- it seems your confession is steered mainly by the fear of discovery than actual danger? What makes you think they are about to descend on you?

If you own up it will as you say cost you not only the revenue owed but the accounting costs etc.

What would it cost you then if you DIDNT own up? Well, owning up may indeed get you a reduced penalty on any liability- but be assured thats not going to be massive by any means. And way way not worth it in my opinion.

No- you have gone clean now and thats great- I would just put these past misdemeanours behind you and just get on with it. This in itself will count in your favour if you are ever "discovered". All that you would be saving apart from clearing your conscience is by having your penalty reduced to say 10% compared to 25-30% if you dont tell them. BUT...the chances that they will dig this up anyway???....negligible in my opinion.

by **wamstax** on Tue Jan 18, 2011 6:43 pm

and watch that you don't use Jugga's advice to give you a reasonable excuse for forgetting about any future misdemenaours.

Presumably if your records are accurate and complete from 2010 then part of your 2010 (year ended 5th April 2010) tax return will have been based on unreliable records and you will run a risk of being discovered until the time limit for raising an enquiry into that tax return has passed (probably 31-01-2012).