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Where Taxpayers and Advisers Meet

Help! Sole trader HMRC investigation

classicmechanic
Posts: 15
Joined: Sun Dec 03, 2017 5:51 pm

Re: Help! Sole trader HMRC investigation

Postby classicmechanic » Mon Dec 11, 2017 10:56 pm

thankyou for your responses. I have been looking over my figures (a lot)

The house is technically mine. From 2009 - 2012 my Sister was lodging at the house and she was paying me £400 a month and was also paying me for the council tax which was 148 a month. So she was paying me 548 most months. I was counting all of this as rental income. I hope that was correct. I was claiming 4250 off this income anyway for the rent-a-room scheme.
July 2012 Sister moved out and I took on 2 lodgers I set up a DD to pay my sister 400 a month. The lodgers together bringing 950 a month. We all went thirds on the council tax so about 1050 going to the account, I appears I included the 400 SOME of the time (really not sure why it was inconsistent), and got 4250 off the taxable amount. This went on until April 2014 when the lodgers left. The house was empty in May/Jun/Jul 2014 and was being renovated including carpets, all interior paintwork etc.
From Aug 2014 I moved in with my parents and rented my entire house out for 1175/m and didn't claim any expenses other than the renovation/insurance/annual gas safety checks. My payments of 400 /m to my Sister carried on until August 2015. U was obligated to pay this as our Dad had helped finance the house and wanted us to both benefit from it. I did not declare the full 1175 rental income, only the net minus the 400 as it wasn't mine.

HMRC have only looked at one year.. Apr 2014- Apr 2015 and are trying to apply extra 400 a month right back to 2009/2010 despite this not starting until 2012. I can hopefully put them straight on that part of their 'query' once i present them with the figures that I have actually worked out.

My original taxable rental income figure for 7 years (after expenses and relevant allowances) £28,100
My revised figures with any missing £400 payments accounted for £39,400
HRMC assumed (guessed) figures £57,200

So an £18,000 difference in the actual revised figures to their assumption figures. HOpefully that is OK for them to rectify still.

Next point in their assessment: They asked what a £4000 cash payment into my personal account was a few years ago, in the first month of the accounting year. It was from car sales the previous accounting period (which they have not seen the records for) and I paid the 4000 straight over to my business bank account the same day. Reason for going via personal account is they don't charge to pay cash in. Barclays charge quite a hefty fee. The car sales are already accounted for in the business records , although none of them neatly make up exactly £4000 but hopefully they won't have a problem ticking this particular query off.

HMRC are also claiming they had to use their 'powers' to get me to send them documentation which is nonsense, as I have promptly sent them everything they have asked me for, apparently there was a letter sent to me in Jan 2017 which never arrived. I think this is what led them to think I ignored their first request. I recently received a copy of this letter and it doesn't look familiar to me at all and I would not have had any reason not to comply with their request at the first opportunity. Having spoken to them, their stance is that it left their office and wasn't returned to them, therefore I must have got it. I was hoping to convince them to downgrade my penalty to whatever is below 'careless'' maybe there is an 'accidental' classification.

In other news, the HMRC case officer and a colleague attempted to find my house last week to return my documents that I had asked for. They didn't manage to find the place (we are in the middle of nowhere) but I did spot them chatting to someone about three quarters of a mile away down the farm track. I was therefore able to get the documents and they did not visit the house.

Thankyou for taking the time to read my little update. And thankyou very much to the kind person that gave me some advice privately.

I've still got one or two other queries to to deal with within this case mainly orphaned Paypal payments into my account which don't show up in my business records. They are trying to make out that ALL of them must be extra income (business related) whereas certainly a proportion of them are for just random stuff. Trying to find out what they were all for is a bit of a headache.

cm

wamstax
Posts: 1856
Joined: Wed Aug 06, 2008 3:39 pm
Location: Operate Nationally but based in Aberdeen
Contact:

Re: Help! Sole trader HMRC investigation

Postby wamstax » Mon Dec 11, 2017 11:20 pm

First thing is you talk of 7 years figures but if as appears to be the case they say you are careless they can only assess you back 6 years (I.e. year ended 5th April 2012) from the current year if you were filling up tax returns for all the years mentioned ( I.e. back to 2009) . If however you did not fill up tax returns careless failures would enable them to go back 20 years . So this would be an important point to consider.

We assume that you were also resident in your letting Property for all the years you claimed rent a room relief.

The rest of the stuff you just need to evidence and document and present to HMRC to get an appropriate reduction in rental profits.

Presumably you held a cash horde/ reserve that led you to banking 4K in cash.

Remember and advise HMRC that you are reconsidering their figures and need more time to fully resolve and evidence the differences between you.
regards and hope this helps
http://www.wamstaxltd.com
Operates Nationally with competitive costs
and email and phone contact can be obtained from website

wamstax
Posts: 1856
Joined: Wed Aug 06, 2008 3:39 pm
Location: Operate Nationally but based in Aberdeen
Contact:

Re: Help! Sole trader HMRC investigation

Postby wamstax » Mon Dec 11, 2017 11:26 pm

From what you say I would consider that you are more likely to achieve more of a reduction by addressing and evidencing their mistaken assumptions and period for which they can recover in conjunction with asking them to suspend penalties AS OPPOSED to the forlorn hope of trying to get them to treat you as WHOLLY INNOCENT (the level below careless) if they are able to establish understatements in relation to your tax.

Remember that the lower you can get the COLLECTIBLE arrears the lower will be the tax and therefore the interest and your careless penalty.
regards and hope this helps
http://www.wamstaxltd.com
Operates Nationally with competitive costs
and email and phone contact can be obtained from website

wamstax
Posts: 1856
Joined: Wed Aug 06, 2008 3:39 pm
Location: Operate Nationally but based in Aberdeen
Contact:

Re: Help! Sole trader HMRC investigation

Postby wamstax » Mon Dec 11, 2017 11:26 pm

From what you say I would consider that you are more likely to achieve more of a reduction by addressing and evidencing their mistaken assumptions and period for which they can recover in conjunction with asking them to suspend penalties AS OPPOSED to the forlorn hope of trying to get them to treat you as WHOLLY INNOCENT (the level below careless) if they are able to establish understatements in relation to your tax.

Remember that the lower you can get the COLLECTIBLE arrears the lower will be the tax and therefore the interest and your careless penalty.
regards and hope this helps
http://www.wamstaxltd.com
Operates Nationally with competitive costs
and email and phone contact can be obtained from website

classicmechanic
Posts: 15
Joined: Sun Dec 03, 2017 5:51 pm

Re: Help! Sole trader HMRC investigation

Postby classicmechanic » Tue Dec 12, 2017 1:10 am

Thankyou Bill.

Yes i had accumulated the cash from car sales, (people usually seem to pay for cars with cash) I always like to keep a small amount of cash available and I was banking the rest. I needed to top up my business account anyway as it only had about 2,000 in it.

Apparently I have til the 19th Dec to appeal, they have already closed their assessment (or that is my understanding of it) and yes I have filed tax returns as self employed since 1995.

One other thing they were moaning about, i entered a £700 invoice in 2014 from a builders for house expenses, (painting etc) not noticing they had typo'd the date to July 2013 not July 2014. I have explained that there is no way it could have been from July 2013 as the house was occupied and in use but was empty and being refurbished in Jul 2014. I might offer to get a note from the company to confirm they attended in 2014, or get them to reprint the invoice with the correct date, hopefully that will work?

wamstax
Posts: 1856
Joined: Wed Aug 06, 2008 3:39 pm
Location: Operate Nationally but based in Aberdeen
Contact:

Re: Help! Sole trader HMRC investigation

Postby wamstax » Tue Dec 12, 2017 1:33 am

Be very careful and ensure that you make the necessary appeal -presumably against their closure notice for the year of enquiry along the lines of
(a) you cannot agree their figures as you are not satisfied that they have the statutory powers to recover duties for all years that they contend for earlier than the year ended 5th April 2012
(b) you are putting figures together to show that their alleged understatements for earlier years are inappropriate and I’ll founded - with your provisional correction of their alleged rental understatements as provided on your attached sheet.
(c) you are pursuing evidence to show the non-business or non-taxable nature of items alleged by them to be understated business/rental receipts (whatever source they allege)
and that in addition to the above you need extra time to produce the evidence in (c).
You would also be best to include that in any case if they are not prepared to work with you to achieve an amicable settlement (including for example suspension of your alleged careless penalties then you will br requesting an independent review of their enquiry once you have exhausted your lines of consideration .

Remember though that you really need to get a n expierienced tax investigation adviser you can sit down with and resolve the issues between you without any precipitous finalisation of your figures or the case going to Tribunal or forced to review before you have considered the necessary avenues to get the correct result. The problem presently for you is that you tell it as you see it and facts can take on a different light depending on how you look at them or depending on who is looking at them.
regards and hope this helps
http://www.wamstaxltd.com
Operates Nationally with competitive costs
and email and phone contact can be obtained from website

classicmechanic
Posts: 15
Joined: Sun Dec 03, 2017 5:51 pm

Re: Help! Sole trader HMRC investigation

Postby classicmechanic » Tue Dec 12, 2017 3:51 am

THankyou again

How many years are they allowed to go back? I have not filed my year end April 2017 tax return yet, so the last one they have is 2016. This was actually submitted on 1st Feb 2017 as I missed the 31st due to a friend (whom my paperwork was with) winding up in hospital unexpectedly. (They did let me off the £100 penalty amazingly !)

wamstax
Posts: 1856
Joined: Wed Aug 06, 2008 3:39 pm
Location: Operate Nationally but based in Aberdeen
Contact:

Re: Help! Sole trader HMRC investigation

Postby wamstax » Tue Dec 12, 2017 10:46 am

Filled up tax return and
wholly innocent -4 years back from this year
Careless - 6 years
Deliberate or Fraudulent - 20 years

Not filled up tax return and
Wholly innocent - 4 years
Careless - 20 years ( Yes 20 years for careless failure to notify)
Deliberate or fraudulent - 20 years
regards and hope this helps
http://www.wamstaxltd.com
Operates Nationally with competitive costs
and email and phone contact can be obtained from website

robbob
Posts: 2726
Joined: Wed Aug 06, 2008 4:01 pm

Re: Help! Sole trader HMRC investigation

Postby robbob » Tue Dec 12, 2017 11:03 am

Nice to see you are making some progress - keep plugging away

The house is technically mine. From 2009 - 2012 my Sister was lodging at the house and she was paying me £400 a month and was also paying me for the council tax which was 148 a month. So she was paying me 548 most months. I was counting all of this as rental income. I hope that was correct. I was claiming 4250 off this income anyway for the rent-a-room scheme.
July 2012 Sister moved out and I took on 2 lodgers I set up a DD to pay my sister 400 a month. The lodgers together bringing 950 a month. We all went thirds on the council tax so about 1050 going to the account, I appears I included the 400 SOME of the time (really not sure why it was inconsistent), and got 4250 off the taxable amount. This went on until April 2014 when the lodgers left. The house was empty in May/Jun/Jul 2014 and was being renovated including carpets, all interior paintwork etc.
From Aug 2014 I moved in with my parents and rented my entire house out for 1175/m and didn't claim any expenses other than the renovation/insurance/annual gas safety checks. My payments of 400 /m to my Sister carried on until August 2015. U was obligated to pay this as our Dad had helped finance the house and wanted us to both benefit from it. I did not declare the full 1175 rental income, only the net minus the 400 as it wasn't mine.

HMRC have only looked at one year.. Apr 2014- Apr 2015 and are trying to apply extra 400 a month right back to 2009/2010 despite this not starting until 2012. I can hopefully put them straight on that part of their 'query' once i present them with the figures that I have actually worked out.
With regard to prior extrapolation by hmrc after they have proved an issue with the year of enquiry - if you provide them of reasonable evidence that things were different in prior years they should revise their calcs as appropriate - they shouldnt seek to tax other years if it is obvious tax isnt due - it is always in your upmost interests to always show that any errors are very one of in nature if that is likely to be the case.

Reference deduction for money paid to your sister this sound confusing - is the house wholly in your name only? - with no specific arrangement otherwise? if it is hmrc may take more convincing you only received half the income, i would not expect though that they would look to tax the same income twice - by providing evidence that you sister has paid tax on this income or at least declared the income to hmrc this may help the situation. If its all in your name though and you simply informally gift your sister money each month that she does not treat as taxable income then it is likely that you may be struggling to convince hmrc that the whole income isnt taxable.

As warmstax advises if you run into a brickwall on any aspects that would be the time to appoint a suitable expert to see if there is any other ways to make hmrc see sense.

wamstax
Posts: 1856
Joined: Wed Aug 06, 2008 3:39 pm
Location: Operate Nationally but based in Aberdeen
Contact:

Re: Help! Sole trader HMRC investigation

Postby wamstax » Tue Dec 12, 2017 11:22 am

And remember to convince HMRC as regards the non business or non taxability of receipts it is not enough to just assert something as being the case but prepare documentary evidence (preferably third party and independent documents) to prove your factual account to negate their allegations. Re paypal etc if you have the other parties email at least why not drop them an email. If even one responds with convincing corroboration of your facts then it suggests their fantasy figures are way off the mark.
Think it highly unlikely you will convince HMRC re deduction for 400 pm to sister but proving your facts and figures for past years will surely reduce the hit.
regards and hope this helps
http://www.wamstaxltd.com
Operates Nationally with competitive costs
and email and phone contact can be obtained from website


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