tax enquiry advice needed

tax enquiry advice needed

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A new client (taxi driver) has lost all his not very well kept records for the last few years. His explanation was a difficult relationship breakdown and family issues with moving from one place to the next.

The tax returns for the last 6 years have not been prepared nor submitted by the ex-accountants. He now has received a letter from HMRC requesting Income & expenditure schedules for the past 6 years.
I am stuck as the client has no records at all apart from a letter from the taxi office confirming the base rent. No figures for fuel, mileage, repairs, insurance, or sales.

He has however provided a single set of accounts from a few years ago but without any supporting data. I am not sure of what i can possibly. I can't even get intouch with licensing authority as he has changed a number of vehicles over the period and does'nt have any records!
Is it advisable to send through the single set of accounts of a few years ago prepared by the other accountant and prepare draft I&E for the remainder years with exactly the same figs and explain to the inspector that there is no other option and he should consider that as the best estimate?

Apologies for the rambling, i've never seen a case as bad as this one. Thanks for your comments.

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By courty61
02nd Dec 2011 15:47

I think you (or HMRC) are going to have to do a 'Home Ec' exercise.

Basically start at his bank/credit card statements (assuming he had a bank account) and work backwards from there. HMRC will argue their case based on the facts of his lifestyle - what he was spending money on etc...

Does the Taxi firm not keep 'call sheets' for private hire jobs? or is he a 'hackney' driver?

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By Vaughan Blake
02nd Dec 2011 16:50

Fight or Flight?

Call me a cynic if you like, (no need to shout though!) but I doubt that any records ever existed.

Your options are thus, refer the client on, or start a lengthy and costly exercise in forensic accounting.

Assuming the latter, as the previous post states the starting point is the bank & credit card statements, these however, may be of limited use in a cash rich business.  Then build up an impression as to how the business is run. 

No doubt the driver has changed his car several times over the six years, however, he should be able to recollect the rough dates and mileages that each one clocked up.  MOT certificates & garage service records should help here.  Once you know his annual mileage you should be able to build up his accounts Sudoku like.

How much mileage is private?

What rates does/did he charge for fares?

What was the mpg/service costs & repair bills (garage may again help here)

Insurance, car tax cab licence should all be easy to price up.

Having built this up then take a step back and do a DIMS test (does it make sense).  Take a look at his lifestyle, this may be tricky if he has moved around and had a costly marriage breakup.

Beware if the chap also has amnesia and cannot remember much about his cars.  Most taxi drivers can tell you about their cars from memory, which was reliable, which wasn't etc etc.

Beware also getting your fees paid.  Bill regularly and set up a standing order, you don't want to be another unsecured creditor if the large tax bill, penalties & interest makes him chose bankruptcy! 

 

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Me!
By nigelburge
03rd Dec 2011 13:42

Client could be "on the level"

I have had a few of these where they have been through a very messy marital breakdown and moved houses many times and tax returns were truly the last thing on their minds.

All you can do is to do the best you can with what you have (ie not much!), make absolutely sure that what you submit is to the best of the client's knowledge and belief and get him to confirm this to you in writing. Then make full use of the "white space" to explain to HMRC exactly what you have done and why.

BUT....... most importantly, get a large deposit for your fees up front and while you do the work, make sure that you send him regular bills AND they are paid by return. Any messing around and just stop work. Put all this in your engagement letter to him before you start work and get him to sign a copy.

(Been there, done that, etc etc etc!!!!)

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By User deleted
03rd Dec 2011 14:22

Unless you're short of work ...

... and have experience of negotiating with HMRC on such cases, I would refer this one on. It is not that it is a particularly difficult exercise, but the time and effort involved in sorting this out is likely to be substantial. Yes, the fees may be significant but as others have pointed out you would need to take steps to safeguard their recovery. There are advisers out there who specialse in such work - you may be able to pass the client on to them to sort out the mess (for a handsome, but cost-effective, fee) but retain the client for ongoing work.

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By Tosie
03rd Dec 2011 19:08

has he got any assets

My experience of these cases is that the client is left very short of money after divorce and as the average taxi driver does not earn much money your fee for six years work maybe too much for him to be able to pay.me thinks this is one for the revenue to do the work and for you to challenge it if the figures are ridiculous.

They will provide you with their workings.

Lets face it there are hours of work in 6 years re-creation getting copy bank statements, credit card statements etc. we know it is a cash business but what if his credit card statements show holidays in Vegas.

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