Low Income - Question means of living

Low Income - Question means of living

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Has anyone experienced HMRC questioning what money someone was living off when taxable income is very low?
Eg. small trading profit £3k and nothing else.

Does anyone ask their client or suggest that HMRC might enquire?

Replies (4)

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By Matrix
04th Dec 2018 21:57

I ask the client and document the reply. I may word it to say that HMRC could ask this question so it doesn’t sound rude or suspicious.

If you are still suspicious prepare a file note or file a SAR/write in the file note why you are not filing an SAR.

Thanks (2)
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By frankfx
04th Dec 2018 22:21

Matrix . is spot on .

100% of the time raise the question.

Years ago local solicitor requested I review an accountant's working papers. to comment on best/ good practice.

Low income. and HMRC enquiry

The poor results and apparent lack of cash resources to support lifestyle was observed and noted by accountant.

Yet he did not demonstrate that he had formally discussed the point with taxpayer.

Judging by the correspondence on file , accountant probably felt intimated by client and should have sacked him.

Now client was taking action against accountant .

A suitably worded letter would have resolved the matter.... years before the event !

There may even be a risk that HMRC view the accountant was deliberately 'blind'' and lacked professionalism.

check page 16 :

https://www.icaew.com/-/media/corporate/files/about-icaew/what-we-do/pro...

In a Recent ICAEW disciplinary HMRC had reported accountant to ICAEW.

The amounts were huuuuge in that case.

''Exercise sound judgement and / or professional scepticism in applying professional knowledge and skill when preparing the above tax return''

Thanks (1)
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By bernard michael
05th Dec 2018 10:09

So it's our fault if the client is a lying scumbag.

I thought it was their return prepared by us from information supplied by them and signed off by them per the 2 declarations below
1."for you to declare that the information is correct and
complete to the best of your knowledge and belief and approve submission to HM Revenue & Customs"
2. Declaration
I declare that the information I’ve given on this tax return and any supplementary pages is correct and complete to the best of my knowledge and belief.
I understand that I may have to pay financial penalties
and face prosecution if I give false information.

How can we be at fault ??

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Replying to bernard michael:
paddle steamer
By DJKL
05th Dec 2018 11:08

Because you, by offering your services, offer to supply reasonable professional care and if you have not addressed the point of lifestyle you possibly have not taken reasonable professional care.

And this all comes back to a thread yesterday re time taken to know/ get to know your client and taking on new clients, if you take time knowing if owner occupier/renter, how many children , a bit of information re other assets and resources , then these sort of issues become more apparent.

As an example (though I do not act for him) my son , I believe , has taken no funds from his contracting company set up following his return to the UK in March.

This looks suspicious. However I know that despite him spending six weeks since then in New York with his American girlfriend and also taking a trip to Iceland with her, that:

1. He has virtually no costs- he is back home, we pay the food bills and he only puts a bit of fuel into my wife's car when she moans at him.

2.He earned lots of money in Germany and has not needed to spend anything he has earned in the UK since March as he has had his savings.

Now if the accountants acting for him did not know anything re his German earnings in 2017/2018 (they do- they have done his UK return re same) they might by now be asking what is a 27 year old living on- he has no visible means of support.

I would also add that MLR might require us to look at these aspects re our clients, something I was taught to do in the 1980s but MLR just formalised the process, imho MLR good practice ought to have us looking at reasonableness re accounts, lifestyle, behaviour on an ongoing basis.

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