Peter-S
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Private & personal income/expenditure

Completion of detailed enquiry forms

I've dealt with a number of tax enquiries over the years with varying degrees of detail required. For the latest, relating to a builder/contractor earning around 40k pa HMRC met me and the  client a couple of weeks back. As it happens records in this case aren't too bad but the follow up letter includes a five page schedule of required information relating to private and personal income and expenditure. The detail requested (for 2014/15) I would struggle to fill in for my personal affairs - take away meals, cinema tickets, hairdressing, christmas expenditure, cleaning products etc etc for two or three years ago. The income section also asks for spouse earnings - I know these as she is self employed and I act but my client under enquiry does not know. Obviously I do not want to be obstructive with HMRC but I would be astonished if my client could answer many of the questions with any degree of accuracy. Has any one any practical tips on dealing with this sort of thing in way that is satsifactory to HMRC?

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20th Mar 2017 11:34

Well all they are trying to do is work out what he spends a year so they can say if you spend £20k how did you manage that with 10k reported on your tax return. We are going to assess you on another 10k

Give it to the client and tell him to make his best guess...

But perhaps it's easy, personally I dont use cash anymore I could just give you my visa statements and jobs done...

Its all going to come down to doing a deal at the end...after ages of accurate work. That always amuses me!

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to Tom 7000
20th Mar 2017 13:00

Tom 7000 wrote:
..... personally I don't use cash anymore .....

Are you seriously telling me that you never, ever use notes and coins ?

Even the Queen has a lady-in-waiting carrying a few coins around for the parking meters.

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By DJKL
20th Mar 2017 11:50

I have not dealt with a full enquiry for years, so this may be miles adrift from current working practice, but I recall that I would have resisted giving HMRC an analysis of client personal expenditure unless the accounting records had been demonstrated to be "broken"

Now I suspect your client has his personal/business transactions intertwined, he may not have discrete business records, but if he has, and HMRC have to date not discovered any omissions from same, you might consider asking them on what basis they consider it appropriate for your client to complete such an analysis?

If they have broken the records, if income omissions are apparent, then fair enough, but expect your client to squirm a bit when they start picking at whatever your client submits.

So what is state of play, have they got him bang to rights or are they fishing?

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By Peter-S
20th Mar 2017 12:27

It smacks a little of phishing to me. As you suggest, business and personal records are intertwined as there is only one bank account and they have the statements but everything is on there from click and collect shopping bills to payments for utilities, mortgage etc as well as credit card totals each month for other stuff. We could analyse his credit card bills, if he still has them, guess what he bought at Asda and guess what he did with the cash withdrawals but the amount of detail they are requesting does not seem relevant. There are no apparent gaps which almost looks like the problem!

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20th Mar 2017 14:12

I would be looking for cash takings and expenditure not covered by bank statements if I was the Inspector.
As all records are in the one account I would take the following actions:
1. Ask for wife's permission to disclose her entries in the bank statements and her accounts to HMRC.
2. If refused redact the statements for wifes entries.
3. Analyse the statements into broad categories, column 1 his business, column 2, her business, categories of spending making up the remaining columns.
4. Repeat exercise with credit card statements.
You may well have already prepared these analyses in preparing the accounts.
You will not be able to identify cleaning, food, etc but supermarket spending, bills, tickets, holidays should all be apparent.
Then talk to them about their lifestyle and diaries for that year. Are there any activities missing from the analysis. Are there any matters specific to wife as opposed to husband.
I would not be too concerned with satisfying HMRC. As long as your analysis covers the statements and there are no apparent hobbies or normal expenses conspicuous by their absence HMRC would have to prove an error in your analysis.

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20th Mar 2017 14:27

I would question whether it is relevant, so long as the supporting records are provided to back up sales and expenses.
I certainly wouldn't go ahead and provide it without at least a bit of "push back" to HMRC.

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By DMGbus
20th Mar 2017 19:44

One approach to the extended unwanted questions from HMRC is:
1. Assert that the business records are robust
2. As the records have been found to be robust no further questions need to be raised by HMRC - unless HMRC have evidence to justify their continued enquiry

Basically the defence is that "HMRC have not broken the records"

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21st Mar 2017 12:19

HMRC may only request information if it is reasonably required to check a persons tax position (Schedule 36 FA 2008)- see guidance at https://www.gov.uk/hmrc-internal-manuals/compliance-handbook/ch21520. As others have noted if HMRC cannot demonstrate from their work so far that there is a real possibility that the business profits returned have been understated because of a weakness in the way that either business income or expenses have been recorded then the request does not appear to comply with the terms of Schedule 36 and should be resisted. If it is not known already HMRC should be asked to explain (a) what there reasons are for thinking that the profits have been understated and (b) if they have none should be told that the request for information does not appear to comply with the requirements of Schedule 36, and (c) invited to say why the believe that the provisions of Schedule 36 are met if they take a different view

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By Peter-S
to michaelblake
21st Mar 2017 14:01

Thank you (and previous posters) that's very helpful

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