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Where Taxpayers and Advisers Meet

Accounts Incorrectly Completed! Tax inspection coming up!

Posts: 2
Joined: Tue Aug 19, 2014 11:45 pm

Accounts Incorrectly Completed! Tax inspection coming up!

Postby flumpsy » Wed Aug 20, 2014 12:26 am

I've been self employed for a few years and have always done my own accounts as tbh there wasn't much going on, some incomings and few expenses as I mainly did jobs via other businesses so I didn't have to worry to much about materials etc. However in mid 2012 I started on my own properly, and stopped working for other firms. I was now seeking my own work, buying materials, invoicing etc. It was abit of a slow process getting the business to make enough money and by early 2013 I couldn't live on what I was bringing in and ended up having to get a normal employed job.
Anyway, when the time came for completing my 12-13 SA my accounts were abit of a mess, So I did my accounts as follows:
worked out my incomings/outgoings when I was doing jobs for other businesses in early 12, added my handwritten invoices amounts for the year THEN, I simply went into my business account which I opened when I started on my own properly in mid 12 and simply added up all my incoming for 12-13 and my outgoings for the year. I didn't go through what reciepts I had etc, as I wasn't too concerned as I'd not made that much money.

fast forward to now and I have a letter about a compliance check for 12-13 on everything.

Obviously this has scared me abit. So I've been reading up on doing my accounts properly and realised how wrong I'd been to do it as above. So I've started working through all my accounts for that year and have found that both my income (orig approx £40k) and expenditure (original approx £30k) are actually alot less than I put down. The profit is roughly the same, but my expenditure has gone down by about £9000 and income by about the same. (I'd included in my income a loan from my StepDad to startup the business properly, and had included in every expendture, basically any cash withdrawals which I have no reciepts for their use and personal expendature)
I was pretty open on the phone to HMRC (not sure if thats a good thing or not) and said I'd done my accounts wrong and have done them purely on a cashflow basis - what ever comes in minus what goes out (also after reading up more on accounting have realised you cant to accounts on a cashflow basis until 13-14, but should be based on Invoiced jobs and expenditure). And so told them I was working thourgh my accounts again properly.

Will there likely be penalties for a large difference in my declared income/expendature?
Will I likely get penalised for my original poor accounting even if the final profit works out roughly the same?
Is it worth just going to an accountant - I don't particuarlly have money for an accountant, but If it would stop me getting a big bill/penality is it worth it?

Any help or advice on any aspect of the above would be appreciated


Posts: 4492
Joined: Wed Aug 06, 2008 4:06 pm
Location: West Sussex

Re: Accounts Incorrectly Completed! Tax inspection coming up

Postby pawncob » Wed Aug 20, 2014 12:22 pm

Let's be completely honest. 98% of HMRC employees (including Inspector level) don't understand accounts. They've been "trained" in taxation not accounting, so whoever you told that you'd done it on a cash flow basis, probably had no idea what you were talking about.

Provided the taxable profit is approximately the same, it's unlikely that any penalties will be imposed, but the caveat above still applies. I've had Inspectors attempt to tax people based on "accounts" which HMRC had prepared, but which bore no similarity to the accounts which my firm produced. HMRC can fine you for failing to keep proper books, but this rarely (never?) happens. I would suggest approaching a local accountant with a view to producing accounts acceptable to HMRC, or to counter whatever assessments they come up with. As their preparation will take time, I recommend doing this before the investigation proceeds too far.
With a pinch of salt take what I say, but don't exceed your RDA

Posts: 18
Joined: Sun Jun 09, 2013 7:52 pm

Re: Accounts Incorrectly Completed! Tax inspection coming up

Postby keaton » Wed Aug 20, 2014 6:45 pm

Any idea what may have triggered the investigation, chances are its not justa random one, and from what i understand the amount your earning does not make you an especially good yield for them.

Posts: 1504
Joined: Wed Aug 06, 2008 3:55 pm

Re: Accounts Incorrectly Completed! Tax inspection coming up

Postby LozaACCS » Wed Aug 20, 2014 7:46 pm

Any penalty on the 12/13 return will be based on the Potential Lost Revenue (PLR).
The taxable profits are therefore crucial, you should ensure that the taxable profits are correctly established, if there is no additional tax liability after the recalculation then there will be no penalty.

Posts: 2
Joined: Tue Aug 19, 2014 11:45 pm

Re: Accounts Incorrectly Completed! Tax inspection coming up

Postby flumpsy » Sat Aug 23, 2014 10:48 am

Thanks for the replies,

I've just about finished my accounts now for 12-13 and it looks like my profit is about £1k more than before. And on my expenses I have around £2k where I don't have the reciepts but can show the transactions on bank statement. Other part which they may question is I had a young lad work with me a few days a week for some of year but he only earned 3k so wasn't registered for PAYE, so not sure about that issue either.

I think the investigation has been prompted as my wife recently had her hours reduced to 16hours so we worked out using council calculator that we would be eligible for about £40pw housing benefit contribution. So we thought we might as well apply, if they say no, then heyho, we'll survive. Wish we'd not bothered now!

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