Tax investigation - pre-school and childminding

[Mikee65]

My wife has had a letter from the HMRC telling her that she is under investigation for her 2009/2010 tax return and that they want her to phone them to 'progress' her case. The issue is that she is a childminder three days a week and therefore self-employed, but the other two days she works in a local pre-school. These figures are small but my wife is beside herself with worry - she has told the taxman on her return that she earns £1680 from the pre-school, but the pre-school has told the taxman that it is about £2900. She didn't take the figure from her P60 - she did it in her head by multiplying the term-time weeks by her basic weekly pay (I know). Her contracted hours give her the £1680 figure, but she covers for other women sometimes and she hasn't taken this into account and it is more than she thought.
She doesn't earn a great deal from her childminding either (about £100 a week, over 48 weeks) and doesn't bother with keeping books etc. The woman who she minds for has the fees paid for by tax credits, so my wife can show what she earns from childminding without too much difficulty, but she is really worried that she will get into trouble for not keeping proper books.

I've advised her to just phone them and tell the truth - that it was an error and that she thinks that the 2010/2011 return has the same error on it, but she's worried that they're going to come to the house and demand to see her non-existent books, frighten the children, scandalise the neighbours etc. What do you guys think is the most likely outcome and what advice can you offer as to how best to deal with the situation?

Kind regards

Mike

(p.s. I moved this from one of the other forums).

[pawncob]

Be honest. Explain the position to them and why the discrepancy has arisen. Apologise.
They won't send the heavies round for such a small amount, but she might suffer a fine for being negligent.

[wamstax]

by my reckoning if her total gross income amounts to £7,700 (i.e. £2,900 plus £4,800) then I would imagine that without too much difficulty she should be able to reduce the £4,800 by some deductible expenses incurred wholly and exclusively in earning her £4,800.

If her net income can be reduced to below £6,475 for the year to 5th April 2010 then there would be no tax unpaid if you have fully reflected her sources and amounts of income. Even if her income was the full £7,700 then she would only have underpaid some £245 of tax for the year to 5th April 2010. Given that amount HMRC are hardly likel;y to send round the heavies or deal with it by inappropriate intrusiveness.

Just suggest in this instance that she phones and says that she made a mistake and correct figures are £x,000 and £y,000 for each of her individual sources. If she can show that some expenses were incurred then of course this would assist and she should detail them as well during her phone conversation.

hope that this helps
bill@wamstaxltd.com