Share this content

Driving Instructor - Tax Enquiry Case

Driving Instructor - Tax Enquiry Case

Didn't find your answer?

I have taken on what appears to be a nasty Enquiry Case, the subject of which is sufferring considerable stress. The baton has been handed on to me by another firm which appears to have spent two years "mucking about" with the case, regularly charging fees but making no meaningful progress at all!

The client's wife is becoming ill because of this case, and even if a "quick fix" is not going to be easily achieveable, I must at least try to aspire to that. My main issue is the exercise of trying to determine what the annual tutoring fees amount to.

The bank statements are messy because non tutoring cash has been paid in. So my opening question is : Can I reconstruct gross fee income by direct reference to any diaries, day books or whatever...

....which leads me to one BASIC point. I have always been led to believe that driving tutors (private tutors) never makew any serious money anyway? Matters like mileage details on MOT certificates etc may help, but can anybody offer any valuable tips on this kind of case?

Blob Griffiths

Replies (13)

Please login or register to join the discussion.

avatar
By martinfoley07
20th May 2008 12:01

the aunt ........
..........passed away just before the enquiry began, having given the client cash (over a number of years?) that he had banked in his account. Could be wholly true - his wife will know.

You do not mention how much more cash has been put into his account than his declared takings, so it's pretty difficult to gauge the extent of the problem.

But having established that, I agree, you are just going to have to rely on best reconstructions using methods others have noted. I have known full time driving instructors who have earned decent money (>£40k) and others who have struggled to reach £20k. You do not mention if he is freelance or "tied". HMRC will have their figures. As said earlier, we would normally argue against the "economic model" analysis - but without any credible records, and unsubstantiated cash bankings, that becomes difficult.

But in going down this route (you have no choices by the sound of it) do not rely on a sympathetic hearing from HMRC or the GCs on the aunt situation - they will tend to ignore it unless client is astonishingly convincing, and work on assumption that the bankings were business derived. HMRC will likely stick to that however much work you do on the analysis, so if there is a big difference between bankings and analysis, be prepared for GC. Good luck.

Thanks (0)
avatar
By Anonymous
23rd May 2008 16:31

Cash

It's not of course just a case of verifying the source of the suplus bank lodgements. It makes sense to work on a Driving School model, look at fuel consumption over the enquiry year etc, the mileage on the clock for that year, and see if a workable opportunity arises for the case.

The danger with the excess non tutoring deposits is that he will be open to possibly conducting another trading activity, accepting that there is not much money in tutoring. I'll know more after next Tuesday which is our meeting date. I'll re post after that.

Thanks (0)
avatar
By Antrobus
23rd May 2008 16:02

DSA data
I had a case a year or two back during which the Inspector quoted DSA data regarding the number of tests undertaken in the client's name. My client did say that there had been contact from DSA at one point about possible errors in that data. Still useful information though. The Inspector was keen to use the information to indicate numbers of pupils - and therefore lessons? - although the case was settled without direct reference to this argument.

I have been told that the data is collected by the examiner recording the instructors badge number at the time of the test.

Thanks (0)
avatar
By jivebunny
21st May 2008 17:27

Help from DSA
I had a similar case a few years ago and I found it helpful to ask the client to approach the Driving Standards Agency with a view to establishing how many pupils were presented over a year for their test. The DSA provided a full list of tests undertaken under the client's reference number. Your client should know approximately how many lessons were required by each pupil before the test and if any resits were required. Establish if lessons were longer just before the test and how much extra was charged if appropriate. If the driving school car was used on test day this would normally result in an extra charge.

Good luck!

Thanks (0)
avatar
By Anonymous
20th May 2008 10:55

The Aunt

Is no longer around as she passed away just before the enquiry commenced. I should have mentioned that! In fact that is one major
obstacle in the case.

Thanks (0)
DougScott
By Dougscott
19th May 2008 18:33

Legal declaration from aunt?
Surely the easy answer is to get a legal declaration from the aunt. If the money has been honestly given I can see no reason for her to refuse to give one. End of story.

Thanks (0)
avatar
By Anonymous
19th May 2008 17:35

Strangely Enough

I'm actually confident that I can achieve a result in this case. Much depends on what I get to see on the first meeting. No driving tutors make £25K or £35K a year so some logic, reasoning etc must be applied here by the inspector as well. when I get MOT certificates etc I'll have an idea as to mileage, I'll get a feel of the geographical area he has operated in etc.

Aunt's cash. Well let's see what comes to light, how she funded her living etc. My main concern would be if the gross trading income looked right, and then we'll move on from there and prove/disprove what we can.

So I am seeking a guide to fee income after I am in possession of everything I can get hold of, and then take it from there.

Thanks (0)
avatar
By Anonymous
19th May 2008 16:59

Tax enquiry case
I am baffled as to the reason why no proper books and records were kept. Surely previous Accountant must shoulder part of the blame have they warned him by letter that the state of his records could lead him into trouble?

Thanks (0)
avatar
By martinfoley07
19th May 2008 15:08

oh dear
..now we see why the previous accountants may have struggled.

You are not required to doubt your clients word that his aunt gave him money, nor should you. But you should look him in the eye and ask him. (Perhaps his wife has done that already?)

Assuming he looks you back in the eye and says of course it came from my aunt, then you suggest re-constructing non-existent accounts as your first step. Along the lines of an economic model estimate, plus factual diaries and related mileage etc.
We usually battle against HMRC when they attempt economic model estimates and say they are quite irrelevant to our specific client. Hey ho.

I think your first step is deal with established and undisputed facts rather than reconstructions, which are a second step.
Bank statements are the first established and undisputed facts. HMRC and forensic accountants make their first task to "follow the money" - what else can they do?

I think you therefore have firstly to see if there is any way of showing how and why the aunt gave the monies that were deposited in your clients account . The fact that they were cash rather than cheques is hardly helpful, and also raises questions which your client and his aunt need to address. It can be done, but it needs adressing by reference to the facts.

Otherwise, you can reconstruct what you like until you are blue in the face, but HMRC will STILL say, very nice, thank you for all your time and effort.
Now, tell us again about this money paid into your account.
And they tend not to accept unverified answers that it came from a relative (mums and aunts are the most commonly named relatives) or bookkmaker. You can hardly blame them.

I do NOT wish to imply your client has not told the truth - he may well have. But he is going to have to back up the story on the cash deposits before this enquiry ends, or take his chances with the Commisioners.
Reconstructing records becomes a secondary show, albeit probably a necessary one (depending on what has been prepared thus far to support the original tax return).

Thanks (0)
avatar
By Anonymous
19th May 2008 14:20

Thank You For Responses.......

....I am anxious about this case because (a) the client's wife if completely
overwhelmed by the situation and tensions exists between husband and wife.

....the accountants who they approached to handle the case have done nothing constructive for the last TWO YEARS.

...Have you ever spoken to accountants handling an Enquiry Case to find that they devise no constructive strategy at all and just blame the client for being naive and foolish?

...Well this is one of those cases. Cash gifted by an elderly aunt has been banked in the same account. This is the client's main problem on this case....

...I am awaiting daybook & any other records, but I suspect that the low achieveable income level for this kind of "trade" must be my starting negotiation point. Any further tips welcomed.

...I am awaiting MOT material for mileage records etc etc...

Thanks (0)
avatar
By Anonymous
19th May 2008 13:24

Diary records
Most driving instructors that I have seen records for have produced a diary as record of lessons given - are diaries available in this case ?

Being a cash business clearly makes keeping more detailed records more important from a defence against tax investigation : have the records been broken by HMRC, ie, established to be deficient ?

The good point made by NH about Franchised driving instructors is that Franchised / strongly controlled (opressed) businesses in many sectors are quite likely to make less profit than those freely conducted (good example : licensee of public houses - no decent money to be made unless a free house).

Thanks (0)
avatar
By Anonymous
19th May 2008 13:14

HMRC website
There is some information on the HMRC website that the inspector will no doubt have access to (http://www.hmrc.gov.uk/bens/ben23.htm).

This gives details of some of the factors they look at to check the records of driving instructors, so perhaps you could get the Inspector to agree to using these methods to recontruct the accounts.

Thanks (0)
avatar
By Anonymous
19th May 2008 12:40

Driving instructors
I have acted for a few driving instructors and have never seen any make any decent money. If they are BSM instructors all I have ever seen is losses!

Perhaps a way forward would be for you to meet with the Inspector and discuss the entire case before undertaking any further work.

Using the method you have suggested would be a possible way to reconstruct income but after 2 years havent the previous accountants done a similar exercise already?

Thanks (0)
Share this content