Hello
Im completing my first self assessment tax return for a sole trader.
My first mistake has been to virtually redo the book keeping, but in doing so I can see that my client is missing loads of receipts...The sums aren't massive, total income £20k, expenses £6k but within the £6k expenses Im missing receipts for about £1k (all of April - May 2010 has been lost for example). I can also verify the expenditure to the clients bank account so I do believe its genuine.
What approach do you recommend?
1. saying to client that its your tax return, if HMRC ask for further information you will be struggling but submit anyway without disallowing the expenses
2. Disallow the expenses with missing receipts
3. Accept based on verification to the bank statement and only disallow if it sounds dubious (eg £100 restaurant bill whichis most likely entertaining...)
I think option3 but I'd like to double check with you wise people :-)
Thanks in advance
Replies (8)
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Our procedure
Not saying this is the best solution, but ....
We do a letter of representation which compares years, highlights any variations, and also lists all assumptions, or adjustments made, explaining the missing information, the treatments given, and the possible alternatives.
They then have space to write any alternative treatment and sign the document.
eg. "£100 restaurant bill dated dd/mm/yy is assumed to be customer entertainment. Please confirm, or advise correct reason for the expenditure.
Make sure your client accepts what you are doing.
If you are submitting the tax return based on a lot of missing information, you have to be absolutely sure that your client is completely aware of what you are doing so that it doesn't come back to bite you on the backside in the future.
Having said that, I always take the view that one must be happy in one's own mind that what you have done is fair and reasonable. That will depend very much on your view of the client, whether he strikes you as honest as the day is long or whether he is a bit of the chancer.
Whatever you do, I recommend that you tell the client in writing that missing receipts can cause a lot of problems in any subsequent HMRC enquiry and that he must be fully aware of the consequences in submitting a tax return based on missing receipts without any other supporting evidence.
We all have these sort of clients from time to time: you should be certainly laying down the law to him in the future so that he knows to keep all receipts etc in the future. Educating your clients to keep better books always pays dividends in the future.
Shirley M I wonder how much cost this adds to client
personally i would take a view, and if necess make an appropraite note and tick the estimate box on the tax return
I agree Carnmores
I wouldn't necessarily go to those lengths with a simple tax return, and would just bung a lot of stuff to drawings, or tick the estimated box, but we always go the distance for full accounts.
Whatever service we provide, we give a printout of recommendations to help them going forward.
or tick the estimated box,?
or tick the estimated box,
I have always understood that ticking the estimated box on a tax return indicates to HMRC that there are estimated figures on the return which you intend to revise at a later time and that taking this box will automatically result in the tax return being picked for enquiry.
If you have made estimates of figures included in the tax return to the best of your knowledge and ability, surely the right way to go about this is to make a note to that effect in the "white space". (Not that anybody ever reads what is written in the whitespace!)
Does anybody care to elaborate on this..........................
White space
We use this regularly if records are lost or stolen, and estimated figures used. We haven't encountered any problems, and HMRC have advised us to do this, as even estimates are better than no figures at all.
We have never had HMRC request an updated return.
Thanks Shirley
that is very interesting however I am not surprised that you do not have any comeback if you enter things in the "whitespace" since it would appear that no one ever reads this!
HMRC state in their tax return guidance notes:-
"Estimates (including valuations)
Estimates and valuations are different and sometimes they may not be
replaced at a later date. Identify these figures – either by putting ‘X’ in a
specific box if asked to do so, or by providing information about them in
the ‘Any other information’ box, box 19. Do not put ‘X’ in box 20.
If you consider your estimates to be reliable, for example, some private
proportions of business expenses, there is no need to draw attention to them."
As box 20 is specifically headed up "If this Tax Return contains provisional or estimated figures, put a tick in the box", I am not surprised that a lot of people tick this box when submitting estimated figures however, HMRC seem to be saying that it should only be used when you are submitting provisional figures which will change at a later date.
Just goes to show .....
We have never ever had an enquiry or a request for an updated return as a result of ticking the box.
I do use the 'estimated figures' box to scare some of my more 'suspect' clients into keeping better (some!) records. Better slap on the handcuffs now :)