Enquiry records

Enquiry records

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Inspector has issued his calculations of what he believes was the correct business turnover. He has reached these decision based on limited business records. Basically he has worked out a daily takings average and multiplied this by 365 days. I don't like the method he has adopted but also he is refusing to give back the business invoice pads so we are able to see where he has got his figures from!! Is he obliged to give back the main records? The case is new to me, the problem being various invoice pads have gone missing/been destroyed as confessed by the taxpayer!! Any thoughts? the Inspector used this based to go back and reassess 10yrs business profits!!
Jason Sharp

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By User deleted
10th Oct 2005 13:34

Another approach
Perhaps a further method of reviewing past years' turnover is to review the client's current year records.

If the client isn't now keeping proper records then this will be thwarted though ! And is the client worth the effort if he still declines to maintain complete records ?

The current year's records could establish the seasonality profile as well as how many days are NOT worked for illness, family social occasions, holidays, etc.

When extrapolating back, always remember to discount current year / latest year figures for inflation. RPI is a good start, but inflation can be more (or less) than RPI in individual industry sectors.

One other point, it seems that, if the business is carrying out an activity that is not VAT exempt, then there could be a substantial VAT liability as well as the IT, Class 4,interest & penalties. If there IS a VAT liability, then this should be accounted for in the figures - ie. deduct the VAT out of re-computed turnover.

The VAT issue's effect on the client & his profits depends upon the industry sector that he trades in (not stated in the query).

Also, if the client traded below the VAT reg'n limit (& wasn't VAT reg'd), but now accepting an IR-computed above VAT reg'n limit turnover, then the VAT liability could be relatively substantial liability.

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David Winch
By David Winch
11th Oct 2005 11:58

How did these invoice pads 'go missing' ?

Jason

It sounds very much as if the Inspector is alleging that the taxpayer deliberately 'lost' or destroyed the invoice pads with the intention of evading tax.

Does your client admit that he did this with that intention?

If the client does not admit it, are there reasonable grounds to suspect that the client did 'lose' or destroy the documents with the intention of evading tax?

If the answer to either question is "YES" then it appears that you have an obligation to report to NCIS under section 330 Proceeds of Crime Act 2002.

Your report can be reasonably brief if HMR&C already have full information and this is not a case of suspected serious tax fraud.

(If the Inspector returns the records and subsequently some of these records are then also 'lost' or destroyed - which may be the Inspector's fear - then whoever is responsible could face criminal prosecution, possibly under section 342 of PoCA 2002.)

David

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By John Savage
07th Oct 2005 18:49

Get back records
Jason, you state that the Inspector is refusing to return the documents. Do not, under any circumstances, lose sight of the fact that the Inspector has no legal right to have the records (for income tax purposes, which is what I assume you are referring to - but for VAT purposes he may have the right) and the sole obligation upon your client is to 'produce' them for inspection, which could mean at his home or business premises if wished.

However, it seems that the inspector has already established that the records are incorrect. He must therefore base any assessment of underdeclared sales to the best of his judgement, and if that is on the number of 'missing' pads, then your client is on a sticky wicket as he is the one who has to displace the method.

I would myself demand the records back from the Inspector and then try to build up the reasons why his basis of assessment is in error, such as the business not being open for 365 days a year (for example), or perhaps your client can prove somehow that not all of the missing invoice pads were used.

Very tricky one this, as your client has admitted that invoice pads have gone missing.

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By User deleted
10th Oct 2005 08:23

Seasonal, COS and time-off factors ?
If some invoice pads are missing then several factors may need to be considered in extrapolating a year's turnover from a sample.

Firstly does the business have a seasonal factor ?

Secondly, cost of sales [COS](depending upon the nature of the business) may be relevant, ie. look at COS ratio where invoice pads do exist to review potential sales where invoice pads missing.

If the business is a one man band, then also factor in holidays / time off (including illhealth).

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By AnonymousUser
10th Oct 2005 09:12

Enquiry
Thanks for your thoughts.

The Inspector is investigating the 31/1/02 accounts. As carbonated invoice pads are missing, he has looked at the ones he holds and has worked out a daily average based on the invoice amounts and dates he can determine i.e. 20 April £200, 10 June £300, 2 Sept £100 average £200 per day x 7 x 365 to get at what he believes the gross business turnover should be. He has then said reduce by x% for winter months and the result is what he thinks the turnover should be. He has then used this figure to say right! turnover understated by X£000's for 31/1/02 and 10yrs prior. He won't release the 31/1/02 invoice pads so we can check his daily average calculations and he is very aggresive threatening to go back 21yrs if we don't agree and put this to bed!!

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