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No records for 40 transactions paid in cash (£800)

Courier washed his van approx 40 times in a year paying in cash without asking for the receipt

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A new client has given me all his records to prepare his tax return 20/21. He has documentation support for all income and paid expenses that hit the bank statements.
I asked him if he had paid anything on cash. He says he washes his van every working week at £20 each time, but he never asks for the receipt to the car washer, and always pays in cash. I have advised him to ask for the receipt in the future. Some questions I have for this experienced and kind community are:

1) Would you include 40 "lost receipts" as £800 allowable expenses in the 20/21 accounts? 
2) Do you note this issue when submitting the tax return? Per HMRC guidance "If your records are lost or destroyed and you can't replace them, please tell us what has happened and do your best to recreate them."

Thank you.

 

Replies (29)

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By Wanderer
12th Aug 2021 01:02

Seneca wrote:

I asked him if he had paid anything on cash. He says he washes his van every working week at £20 each time, but he never asks for the receipt to the car washer, and always pays in cash. I have advised him to ask for the receipt in the future.

Do you have doubts that the expenses are genuine?
If so, a month after you gave the client the above advice ask him for the receipts for the previous 4 weeks.
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Replying to Wanderer:
seneca
By Seneca
12th Aug 2021 08:59

He drives a medium van, and the rest of the clients I have with the same business wash the car themselves, or wash it once a month maximum. I only met this client this week, so I cannot test your advice, as I told him I would have the accounts ready in a couple of weeks, but thank you for noting it.

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Replying to Wanderer:
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By Southwestbeancounter
12th Aug 2021 14:51

We did that once with a taxi driver and the expense automatically stopped being claimed!!

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By johngroganjga
12th Aug 2021 06:30

You need to ask where the cash allegedly spent on the van washing came from, and what other expenses he paid in cash. Then see if the shortfall on the cash account is equal to the alleged undocumented expenditure.

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Replying to johngroganjga:
seneca
By Seneca
12th Aug 2021 09:09

Thanks John. On one hand I cannot see where the cash came from as I replied to SXGuy below, on the other hand this is the only expenditure he has given to me without support so I have reasons to believe him there. That is why I was thinking of taking it as true but noting it in the tax return.

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Replying to Seneca:
By johngroganjga
12th Aug 2021 09:27

But you need to know where the cash came from to account for it. What will your double entry be otherwise? You need to ask your client to explain.

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Replying to johngroganjga:
seneca
By Seneca
12th Aug 2021 09:53

The only option I have is to book it against a Petty Cash account for which I do not have records, which I know sounds weak. He is a sole trader so accounts do not need to be submitted.
I will ask the client more specifically how he paid in cash but I am afraid he will tell me it was from any withdrawal of more than £20 that I can see on the bank statements on any random date, and then I will be in the same situation asking myself if it is true or not.

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By SXGuy
12th Aug 2021 07:00

Can you see cash drawn from the bank? What type of trade does he have? Is it one where there's a likely hood he'd pay for washes? Etc etc.

I think if it was a black cab driver it would be unlikely he wouldn't spend that on washing the cab so I'd reasonably believe it genuine, but would still want to be sure.

Thanks (2)
Replying to SXGuy:
seneca
By Seneca
12th Aug 2021 09:05

Thanks SXGuy, he drives a transport van delivering Amazon parcels and his contract with the contractors states the van has to be clean and in good conditions. However, I cannot see £20 the cash withdrawals in the bank statements. I see higher cash withdrawals on random dates so he could allege he pays from those I guess.

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By New To Accountancy
12th Aug 2021 08:00

I've had this before.
I asked the client if he has dash-cam, he said yes. I said I could save the file to a USB stick and email to him (basically, I'd do the work). And should HMRC investigate, they can have the footage. This way, we can comfortably claim it with at least some proof.
The client decided against this even though there was no work in it for him.
Another way of supporting his claim is to ask if he has the location on his phone as Google will show exactly where he was each week, it'll even show the name of the car wash he was at. Usually people do these things on a set day/time each week so it'll take seconds to look through. Even if location is only on a couple of weeks out of the month, you can still look at them and see. If he goes every Friday, just look at the Fridays, you'll soon know if it's genuine.

I don't do this in an inquisitive way, I do it as though I'm helping them, because I am.

Ps: I've represented myself at a couple of court cases and won both, all the tactics for evidence I had to provide, has been brilliant for catching out clients or supporting the genuine.

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Replying to New To Accountancy:
By ireallyshouldknowthisbut
12th Aug 2021 09:02

This.

A perfect answer to "evidence gathering" in light of a lack of documentation.

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Replying to ireallyshouldknowthisbut:
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By New To Accountancy
12th Aug 2021 09:07

Thank you.

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Replying to New To Accountancy:
seneca
By Seneca
12th Aug 2021 09:26

Thank you. No dash-cam, I am afraid, but the Google GPS tracker is not a bad idea. I have another client who delivers with Uber Eats and to evidence his trips on the Mileage Log I ask him to take a photo (EDIT: photo of the meter) at the beginning and end of each working period, your advice looks even more techy!
For this tax return, I am thinking of submitting it as allowed expense but commenting the issue in the tax return, with the permission of my client, and noting he will claim receipts in the future. If he starts to wash the van himself this year I will know he tricked me.

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Replying to New To Accountancy:
Scooby
By gainsborough
12th Aug 2021 09:20

Brilliant ideas NTA - thanks for sharing!

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Replying to gainsborough:
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By New To Accountancy
12th Aug 2021 09:48

No problem.
I suggest 'location' to clients who forget to write their mileage down. Google gives the mileage too.
I once read on here that a client was investigated and the HMRC officer asked for the log book to support mileage claim, so this helps support that too.

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By bernard michael
12th Aug 2021 09:41

I can't believe this is a serious question for this amount of expenditure
If you believe him put the £800 in or what ever figure you think is reasonable.
All small clients tend to produce non verified expenditure and it's not worth checking for small amounts.
As for noting in the SAR as suggested I would advise against unless you want HMRC investigating the return

Reasonableness prevails in my opinion

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Replying to bernard michael:
By SteveHa
12th Aug 2021 09:59

bernard michael wrote:

As for noting in the SAR as suggested I would advise against unless you want HMRC investigating the return

Seconded. Why give HMRC ammunition to fire an opening salvo? Let them find their own bullets.

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Replying to bernard michael:
seneca
By Seneca
12th Aug 2021 10:01

Hi Bernard, I only started as a sole practitioner less than a year ago, so you might have noted my inexperience. I did try to raise a serious question. Most of my clients are low-income sole traders, therefore £800 expense with no back up is a significant amount compared to what I am used to dealing with.
Your response was very helpful to me, both noting the low materiality of the expense and the advice against noting it on the SAR, so I really thank you.

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Replying to bernard michael:
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By Mr_awol
12th Aug 2021 16:14

I'm glad someone else said it - i was beginning to think i was the only one who wouldn't ask for client GPS logs, Dashcam footage, or any other such (frankly ridiculous) evidence. I'm also bewildered by John's suggestion that you cant post this without a double entry (drawings/CPI?) or anyone who wants to track it to individual £20 withdrawals. I'm dismayed that accountancy has stooped to this level of belief that if it isn't on a bank feed or some sort of tech/cloud-based evidence it cant possibly be an expense.

I don't carry cash at all generally, but i do manage to pay the car wash guys and i don't draw the exact money on the day.

I'm not saying just let the client put any old rubbish in without substantiating it - but a few car washes, surely you either believe him or not. I would tell him that he should really get a receipt and move on to something interesting.

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Replying to Mr_awol:
paddle steamer
By DJKL
12th Aug 2021 23:13

Agreed, these days it would normally have been a £200 cash withdrawal about once every couple of months but with covid this is down to about once every six months.
(the only regular cash payments I make are my window cleaner and he issues invoices, £8 per month)

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Replying to DJKL:
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By Caber Feidh
14th Aug 2021 03:08

I withdrew £200 from an ATM for minor purchases on the evening before the lockdown started - I still have not touched it. Everything has been credit card or bank transfer - I have not even met anyone who would accept a cheque.

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By doubletrouble
12th Aug 2021 10:39

If he goes to the same place every week just ask him to go back and get a receipt, not sure why that would be a problem as the car washers must have been declaring the £20 every week in their books, wouldn’t they???

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Psycho
By Wilson Philips
12th Aug 2021 10:49

To me it is not the lack of receipts that is the problem, but the cash nature. The amounts are neither here nor there and certainly do not seem unreasonable and I would include them with no further mention on the return.

I would simply be advising client that if HMRC were to pick this up they would almost certainly allow the cost but at the same time would be seeking clarification/evidence as to where the cash had come from. He would no doubt say out of his own pocket but that would potentially open up a whole can of worms, review of private bank accounts etc.

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By fawltybasil2575
12th Aug 2021 10:52

@ Seneca (OP).

To answer your two questions directly:-

(1) The over-riding requirement, to ensure that your actions comply with ethical standards [“specific” ethical standards if you are a member of ICAEW (and no doubt other accountancy bodies): and “general” ethical standards if you are not a member of any such body] is to ensure that you do not associate yourself with the submission of incorrect Tax Returns to HMRC.

Hence, if you ARE satisfied with the client's explanation, having exercised professional judgment, that the expense is valid, then you should submit the Tax Return; and, by the same token, you should not submit it if you are not so satisfied.

(2) Re the HMRC guidance from which you quote an extract, the words “If your records are lost or destroyed” mean the ENTIRE records, not a small part thereof [albeit, to be pedantic, in your client’s case, there are no “lost or destroyed” records in any event, since the client states that no “records” (of the vehicle wash expenditure at issue) were “lost or destroyed” since they were not obtained in the first place !].

One would only include a “white space” note, re the £800, in very exceptional circumstances (and such circumstances do not apply in your client’s case).

Basil.

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By AndyC555
12th Aug 2021 10:53

I don't think it's your job to do HMRC's job. If a client says he paid cash and didn't get a receipt then short of calling him a liar, what can be done?

This is a common occurrence.

HOWEVER, it can be explained to the client that HMRC are not as trusting as you. That if there was to be an investigation it might cause problems and that in the future he absolutely should get a receipt.

Cover yourself by emailing him to outline the position "I have included the van washing expenses as claimed by you. As mentioned it is possible HMRC might dispute these if there was an enquiry as there are no receipts and I strongly advise you to get receipts in the future".

Job done.

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seneca
By Seneca
12th Aug 2021 11:14

@ doubletrouble, Wilson Phillips, fawltybasil2575 and AndyC55, and all previous AW posters, thank you for your feedback.

I believe I have enough information from all of you to make a decision.

Thanks (7)
Replying to Seneca:
Melchett
By thestudyman
13th Aug 2021 15:56

Don't worry this will all come out in the "wash"

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Giraffe
By Luke
13th Aug 2021 11:19

I also would claim these expenses and not note anything in the white space. It is prima facie a reasonable expense for the type of business.

I would however get the client to sign a standard letter of representation which additionally mentions the van washing expense and have them sign to say it's a valid business expense for which they have no receipts. Sometimes getting them to sign something directly saying it's valid means that those who are a bit iffy suddenly say not to claim it.

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By AdamMurphy
14th Aug 2021 08:09

You can pay by card for most things now, I’ve even seen it available for public conveniences. Would be interested what he says if you ask him to pay by card instead……

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