I have a client who has a cash intensive (Ninty-percent of payments.). She has been depositing the cash she receives from trading into her bank account (This is also her personal one.). This in itself is not such a big problem; however, she had a flatshare in the past were she was a co-leaseholder and collecting rent from the lodgers in the form of cash to pay the rent. She has deposited the cash she makes from her self-employment work and the cash she has collected from her flatmates at the same time; so, to me, it looks as if it is one big cash payment. She does rarely raises invoices. The ones she does have are pretty sparse. Additionally, she doesn't have anything in writing that those lodgers were paying her any kind of rent aside from one Facebook message. Again, normally I would just go down the bank and add this up as income; however, the cash income she has gotten from her lodgers have kicked up her taxable income by 20K! I'm having a hard time seperating this as I don't feel given the evidence an scenario I would have a lot to stand-on if an audit would occur.
Has anyone had a similar experience with a client? My first thought is to bite the bullet and declare it all since I don't feel this would hold up well with HMRC considering they will just see cash deposits for a cash intensive business and likely want to maximize their own revenues. It is her first year of trading. I have advised to get a business account and to seperate things and keep better documents in the future. Are there any other view points on this though? I just feel it would be quicker and a much better look to just lodge it all with a disclosure stating some of this income is from a flatshare and that all has been declared as a matter of caution and enter into a payment arrangement straight-away after the return has been filed?
Any views? I really do think swallowing the pill is the cleanest option but is it the best one?