I know that records should be kept with regards to mileage and sharing private/business tel bills. what is hmrc's view on this. can a % of mileage be taken off the 2 mot's and for telecom bills? how does one establish the % and does hmrc take a dim view on this? are there any practical guides or accepted practice
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Yes you have to be able to justify the %. Yes HMRC will take a dim view if you can't.
You establish the % by investigating the facts.
HMRC are NOT the arbitors of what constitute acceptable records
I have just received a letter from HMRC following the visit stating that the records were inadequate as he did not see a mileage log and the 67% charge of business for phone costs could not be justified at the time. he is visiting again in 3 months time to check if there has been an improvement in record keeping and if not a £500 can be levied! is this a new way for HMRC to raise revenue? by the way this client is a 73 year old who gets her tax return done by her daughter once a year!!!
although they like to think they are.
The final say is that of the FTT's findings as a matter of fact.
The chances of HMRC defending a penalty of £500 in your case is remote in the extreme. There is nothing in the legislation that says that mileage logs etc must be kept, just that "adequate business records must be kept". Now clearly adequate records for a large multinational company will greatly differ from those of a little old lady.
It would appear that you have got lumbered with an officer who simply has no common sense and who likes throwing his weight around. If you believe that your estimates of private use are adequate, then stand your ground. If not then keep the logs requested. If you refuse to keep the logs, then it is up to the FTT to decide if your estimates are "adequate" NOT HMRC.
News to me that HMRC can charge penalties other than for late or incorrect returns. Will be interested what others think.
Agent Account Manager
I would suggst that you register this matter with the AAM Team straightaway. I personally have never heard so much nonsense in all of my accountancy life ! I agree that no proper judgement can be made of the adequacy or otherwise of the business records from a three month "snapshot". Is it me or have the lunatics finally taken over the asylum ? Am I allowed to say that !
AAM Team
Agent Account Manager - go onto HMRCs website and register for this. You can then take this issue up with them directly - dispute resolution service is another way of describing them. I have used them several times and found them to be very knowledgeable and helpful.
Annual tax computation surely
Business records should record all expenditure and these should mostly be for business income and expenses. Most clients inadvertently put some personal expenditure through the business and some in the form of costs that need apportionment between business and personal. These personal costs are excluded or disallowed when the annual tax computation is completed. Recording an element of personal expense as part of the business records can never be classified as inadequate record keeping in a three month snapshot.
I couldn't agree more. VERY good point.
Business records should record all expenditure and these should mostly be for business income and expenses. Most clients inadvertently put some personal expenditure through the business and some in the form of costs that need apportionment between business and personal. These personal costs are excluded or disallowed when the annual tax computation is completed. Recording an element of personal expense as part of the business records can never be classified as inadequate record keeping in a three month snapshot.
But then when did stroppy HMRC officers ever care about what the legislation actually says.
This is a point which can only be dealt with by enquiry surely, not as part of a BRC.
Letter
I often write letters such as that suggested - it's a good way of getting your frustrations off your chest, but I would not actually send it. I suggest that admitting in a letter to HMRC that the private use adjustment is baseless and historical could lead to the Revenue being able to make a discovery assessment. No mention of past years should be made.
At present the only issue is whether the client is maintaining sufficient records to enable an accurate tax return to be prepared. Guidance is available as to what the Revenue consider to be adequate records and as far as motor expenses are concerned, it is clear that a mileage log is expected. Whilst most of us would feel that the Revenue are being unreasonable in asking for such a log, the officer will presumably need something so that he can tick the appropriate box in his review questionnaire. They do not appear to be threatening an enquiry into previous years at present but if there is no mileage record or if there is one but it shows a lower business usage than the proportions used in earlier years, an enquiry may well follow.
My advice to the client would be that if she wants to continue claiming then she must keep a log at least for a representative period and she should also mark her telephone bills with the business and private usage. Hopefully the proportions will come out roughly to what she was claiming in the past but if they do not, you and your client will need to consider what has changed recently so that she can be ready with an argument as to why larger proportions were claimed in earlier years - unfortunately "it's historical" could lead to a lot of trouble for your client!
I always tell my clients
To record everything that is or may be allowable (highlighting those items they are not sure of - I am not talking about hiding things away here) and then we can check it when we do the accounts. They are not always sure what is claimable but including it in the cash book does not mean we will claim tax relief on it.