VAT / TAX discrepancy

[Lionel Hutz]

I'm under enquiry with the Taxman. They found out that I put a VAT rebate into a personal account and the 'personal drawings' are to be increased.

Does this mean I have to pay more tax? I don't think you claim for drawings as an expense in any case, so if I agree they should be increased, does that mean I don't have to pay more tax?

Any help would be appreciated

[accountant@uktaxshop]

"Lionel", (Simpsons fan I see!)

From your post I assume you are a sole trader.

In which case the answer really depends on how you initially accounted for the rebate.

If you have included the rebate in your profit computations for the year in question there will be no additional taxes arising.

If however you have simply taken this rebate into your personal account, then this will probably be taxable at your marginal rate of tax and be Nic'able.

It is hard to say for definite without knowing how you compute your taxable liabilities.

Given you must have a sizable turnover to be VAT registered, I am surprised you do not already have an accountant - if you would like someone to represent you both during the investigation and on-going I would be delighted to assist. A good accountant would prevent errors such as the one you are being investigated on occurring in the first place, and may be able to save you tax in other areas by making all the necessary claims available to you.

Regards,

James Smith
Chartered Accountant
www.uktaxshop.co.uk
01284 764436