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Commingling Funds

Client Has Mixed Cash Income From Business with Flatshare Cash Payments

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Hi Group,

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? 

Replies (8)

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By Accountant A
11th May 2019 15:26

Quote:

I don't feel this would hold up well with Inland Revenue

"The Inland Revenue was, until April 2005, a department of the British Government responsible for the collection of direct taxation ..."

https://en.wikipedia.org/wiki/Inland_Revenue

EDIT: FOR THE NUMPTY OP, THIS IS A UK SITE AS DENOTED BY THE CO.UK URL AND THE SITE INFORMATION https://www.accountingweb.co.uk/about-accountingweb 'AccountingWEB.co.uk is the largest independent online community for accounting and finance professionals in the UK '.

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By johngroganjga
12th May 2019 13:57

So your client keeps no records of her business transaction and none of her rental income? Her problems are therefore entirely of her own making and for her to sort out.

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By andy.partridge
12th May 2019 14:07

Remind me of the point in asking UK accountants about legislation and standards of something that has nothing to do with UK legislation and standards.

Sorry if this sounds harsh, but you sound intelligent so I’m bewildered.

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By Tax Dragon
12th May 2019 21:49

Stop editing your question and engage in the discussion. Otherwise the thread just turns into gibberish. As it already has.

PLUS - you don't get a meaningful answer.

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By Tim Vane
12th May 2019 22:11

My view: the client should, not necessarily in this order: (a) follow the advice of an experienced accountant and (b) appoint an experienced accountant.

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By Matrix
12th May 2019 22:21

Is she running a rental business or is she just collecting rent and passing it onto the landlord? Are there rental payments leaving the bank account? By all means tell her that, if she can’t support that this income was rent, then you will have to treat as trading income, but see if it stacks up first. Since tax is paid on profits, you should be looking at the money out and not just the money in.

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Replying to Matrix:
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By JoF
12th May 2019 23:27

On the last edit the OP insisted their 'client' she was based in New Zealand. It's now the 3rd version I've seen. So who knows?!

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Replying to JoF:
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By Accountant A
13th May 2019 10:33

Quote:

On the last edit the OP insisted their 'client' she was based in New Zealand. It's now the 3rd version I've seen. So who knows?!

Beyond bizarre, even by the standards we usually see on here!

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