Incomplete and Incorrect Accounts

Introduction

The Government seems intent on clamping down on non-compliance of tax obligations, particularly those who deliberately fail to pay their 'fair share' of taxes. For example, a new penalty regime is being introduced, with the prospect of potentially higher penalties for deliberate or persistent offenders. However, some taxpayers fail to comply through no fault of their own, and quickly find their tax affairs in something of a mess. Many of those taxpayers are desperate to put their house in order, but do not know where to start. Some become paralysed by anxiety over the possible outcome if they try to 'come clean', and instead bury their heads in the sand and pretend that the problem will simply go away. Fortunately, that approach does not seem to apply in the following query, from 'asheldon'.

Query from TaxationWeb visitor ('asheldon')

My ex-wife had completed my accounts and tax return as a sole trader over the past four years. The tax office has made an enquiry and it is clear the accounts are both incomplete and wrong(!), not only for the year they require information on but the previous years also. What will happen if I have no accounts for them to view and how will they calculate the mistakes, i.e. wrong numbers in the wrong boxes? Will they also allow me to pay back in instalments?

Editor’s Comments

There is a temptation for taxpayers to engage in 'DIY' when it comes to dealing with their tax affairs, particular to save professional costs. However, this course of action can often be counter-productive and a false economy, because it may lead to enquiries from HM Revenue and Customs (HMRC) particularly if the return (including any accounts) are clearly incorrect, and because professional help may be needed eventually if the taxpayer gets into difficulties, as in this case.

Unfortunately, HMRC are unlikely to accept reliance by 'asheldon' on his ex-wife to prepare complete and correct information as a reasonable excuse for an incorrect return. This is because the onus is normally on the taxpayer to ensure that their tax return has been prepared correctly. However, 'asheldon' seems intent on putting the situation right, which is a good start. As indicated below, professional help from an enquiry specialist (or suitably qualified and experienced accountant) could prove to be money well spent. Taxpayer co-operation and disclosure are important elements in ensuring a discount (or 'abatement') on the level of penalties charged by HMRC on any additional tax liabilities resulting from the mistakes made.

HMRC may also be amenable to the payment of additional tax by instalments (albeit probably over a limited period) following taxpayer co-operation, although interest is normally calculated to the date of payment.           

Forum responses included those reproduced below.

'wamstax' commented:

Let us be quite frank even though your wife completed your tax return it will depend a lot on what errors there are to say how HMRC will view matters, after all you would have signed the return as being correct and complete. If you signed the return without looking at it then that was a bit foolish given that it couldn't be that long ago since the return was submitted.
 
You should I think be considering getting the help of somebody experienced in these matters to see exactly what problems have been manifested on you. You may well have a difficulty placing the problems at your ex-wife's door. However everything would need to be considered with an open mind to determine the risks or opportunities open to you.

Instalments are always a possibility but HMRC might prefer you to realise assets before recourse to "lending you the money" for a period.

Simon Sweetman commented:

I agree wholeheartedly with the first answer. Go and seek professional help before you do anything else!

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Article Added Friday, 06 April 2007

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