Should I complete a tax return for a client when they have only provided estimated expenses to net against income?

Should I complete a tax return for a client...

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I'm new to this site and so I hope this is the right place to ask my question: I provide accountancy services to client's on a freelance basis after working in practice for many years and qualifying as ACA - I generally only provide accountancy services as it has been some years since I worked in a tax dept. A new client (tradesman) recently asked me to do his accounts for him and said he would drop by with the accounting records, however, when he did they consisted only of 12 x CIS deductions statements from the business he has been working for together with a short list of 'estimated' expenses that he has incurred in relation to this work over the last year (eg) mileage, telephone, hand tools and a couple of small capital items etc (totalling < £1,000). Obviously it is not worth preparing any accounts for him which means I need to do the tax return. I am just a bit wary of doing it bearing in mind that he hasn't kept any receipts for his business expenses at all!! Even though this is a very small client, I would like to take the work and wondered if it would be sufficient to cover myself by making him sign a standard letter of rep together with him signing the schedule of business expenses for which there are no receipts? (Also, part of the 'business expenses' that he has listed relates to cash paid to his friend who also works on site and for which my potential client pays him 50% so that they share the fuel costs (as he doesn't drive) I assume this would be allowed, again, even though there is no proof and so is based on estiamted business mileage each week)?

Overall this is only a small issue but I would appreciate other peoples thoughts/experiences.

Replies (6)

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David Winch
By David Winch
30th Apr 2014 20:49

Estimates

This is an issue which has been discussed recently on AWEB.

I think a reasonable approach would be:

1.  Prepare a schedule of the estimated expenses, discuss this with the client & get him to sign it as approved by him (before submitting his tax return to HMRC).

2.  Tell client he risks having all these expenses disallowed by HMRC if he does not have receipts - so he needs to improve his records from here on.

3.  Satisfy yourself that the expenses seem reasonable & allowable to you (take extra care over travel & subsistence expenses - and in any case where total expenses exceed 20% of gross income).

4.  Make a note in the 'white space' on the tax return that expenses are based on estimates without receipts.

5.  If the client won't co-operate get rid of him.

David

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By ShirleyM
30th Apr 2014 20:59

What about the CIS scheme?

Have they each received CIS statements, or is the total income recorded against just one of them. If so, he should have deducted CIS tax from his friend. Failure to register as a CIS contractor (ie. engaging his friend as a subcontractor) can result in some very hefty penalties.

The CIS scheme is a trap for the unwary, and he may already be in a 'bit of bovver'!

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David Winch
By David Winch
30th Apr 2014 21:15

@ShirleyM

I was assuming that what the OP meant was that his client pays to his friend 50% of the friend's fuel costs (and nothing else).

On re-reading I can see that the OP might have meant that the client is paid both for his own labour & that of his friend, and he passes on 50% of what he receives from the main contractor.

If that is the case then the client may indeed be in some difficulty.  Firstly he has used a sub-contractor (his friend) without registering as a contractor & operating CIS.  Secondly his gross receipts might have exceeded the VAT registration threshold (& presumably he has not registered for VAT).  Not good!

David

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By LT2014
30th Apr 2014 21:45

Thank you for taking the time to reply. The client and his friend receive their income and CIS statements separately from the contractor that they have been working for and he is just travelling to work with someone else who works on the site and is paying this friend 50% of the fuel costs. With that in mind the steps mentioned by David in his first post appear to be consistent with what I had in mind to do to cover myself but just wanted to get some other experienced opinions!! Thank you again, it's much appreciated.

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By cruz
30th Apr 2014 22:23

Agree also
The method as outlined is exactly how I complete my CIS clients however use each year as a training exercise for them providing mileage logs, diaries and files for CIS statements and receipts.

I have a client who doesn't have the complete list of CIS statements to support payments but provided my with bank statements for the complete year allowing net payment to be grossed up. Am I right in saying that HMRC would take months to provide the details for my clients I.e. what was submitted by each contractor as per their CIS300? Would anyone complete tax return based on this information obviously indicating to the client that should the numbers not tie in with what they have on their system then proof will be requested?

Thanks in advance

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Replying to leeanthonyblackshaw:
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By LT2014
30th Apr 2014 22:50

Thanks for your reply Cruz, I do intend to train this client to keep proper records going forward!! Unfortunately I can't be of help re you query as I don't really specialise in the tax side of things, hopefully someone else will be able to help you though.

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