A salutary lesson in how to not keep records and hence fall foul of HMRC.

Roger Whitlock failed to maintain good records and in these circumstances  HMRC can and do, infer missing figures from any evidence it is able to gather. The fewer facts the taxpayer can present, the more scope HMRC has to fill in the gaps with its own figures.

He had been self-employed as a clearer of various domestic and commercial items since 2005. His 2015/16 tax return came to the attention of HMRC officers when they noticed that the income and expenses on his return appeared to have been rounded to the nearest £1,000 and his profit for this and many earlier years was just under the level of his personal allowance  meaning he paid little to no tax each year. 

HMRC was sceptical about these figures so requested to see his records such as they were.

Whitlock provided HMRC with receipts and these showed cash purchases of £32,463. However, when HMRC checked Whitlock’s bank statements it found that only £13,688 had been withdrawn as cash so they were able to zero in on the  £18,775 shortfall between the cash purchases and cash withdrawn. 

HMRC had also noticed that Whitlock’s mother had a bank account with frequent amounts passing between it and Whitlock’s business account and that not only did more go into the mother’s account than out, but that often payments were made by one account to the other and then the same amount back again later that day.

Despite his mother receiving a pension, no such amounts were paid into the bank account and no living expenses left it. Clear business expenses, such as van insurance, were however paid from it. HMRC concluded that this was a second business account.

From these and other findings HMRC began to build their case that income had been underdeclared and that Whitlock had received additional undeclared income of £38,409 for the year.

HMRC considered that Whitlock had been deliberate in his under-declaration of taxes and that all evidence suggested that prior years would be subject to the same errors as those found in the 2015/16 enquiry.

A discovery assessment was therefore issued covering the previous five tax years. This led to additional tax arising of £62,088.

Lesson: Make sure you have good records and can track all your income and expenses.

HMRC workers – self isolation exemption

HMRC staff will be able to continue working even if they receive a ping notification that they have been exposed to covid-19 in the latest amendment to self isolation rules.

Over half a million individuals have been pinged and told to self isolate for 10 days as they have come into close contact with someone testing positive for covid-19.

The new exemption will affect a limited number of HMRC staff. HMRC has identified a small number of HMRC roles as appropriate for daily contact testing instead of self-isolation should the need arise.

The focus for daily contact testing is on a small number of staff in roles supporting the tax authority’s IT infrastructure and other key roles who need to be in the office to keep essential activities running.

Penalty scheme for deferred VAT

A financial penalty may be charged if you did not take any action to pay your deferred VAT in full or failed to make an arrangement to pay by the deadline of 30 June 2021.

The penalty is calculated based on the amount of unpaid deferred VAT. The penalty is charged at 5% of the deferred VAT that is unpaid when the penalty is assessed.

However, it is possible to negotiate with HMRC over payments, particularly in light of the impact of Covid-19 on businesses. The latest guidance states that businesses can arrange to pay either by joining the VAT deferral new payment scheme or by contacting HMRC to agree extra help to pay.

Once a penalty assessment is received, businesses have 30 days to make payment to settle the outstanding VAT charge.

  Fifth SEISS grant opens for applications

The fifth grant can be claimed if you think that your business profit will be impacted by coronavirus between 1 May 2021 and 30 September 2021. 

The scheme closes on 30 September.

The application process for the fifth SEISS grant will depend on details of two years of turnover and losses resulting from the pandemic.

There are some rule changes for the fifth grant which are important to take into account and also note that accountants are not allowed to apply directly on behalf of their clients.

Questions?

If you have any questions about any of these, you know where to find us. If you prefer, just give me a ring on 07770 738770 or email me at alan.long@thelongpartnership.co.uk.