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Practice Tips - Fill in your paying in books

15th Jul 2005
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I met an acquaintance on the train recently, and with an hour to spare on the trip to London we got into conversation, during which he confessed that he’d had a recent spot of bother with the Revenue.

I’ve never acted for this chap, and some of the time he’s certainly submitted his own accounts and returns (a foolhardy thing to do, as I advised him). But what the bother was about was not his accounts but his private bank statements, which, as usual, the Revenue had requested. Now I know all the arguments about this not being necessary, but at the end of the day they can usually find a reason to get their way, and in this case they did.

And, as usual, not all the lodgments could be proved to come from the business.  In fact quite a number of thousands of pounds worth over the years must have been from other sources. Some he was sure were from shared holiday expenses. A bit was from a time when he cohabited and some bills were reimbursed. Some he simply couldn’t be sure about, but none of it, he was certain, came from business sources. After all, he said, why have a business bank account and records and pay business earnings into his private account? And I believe in this case that he was telling me the truth.

But his problem was he could not prove it. He had no paying in slips for the private account. He had never written what any lodgment was on the back of the paying in slip the bank retains. It had simply never occurred to him to do so. And he was going to pay several thousand pounds in tax, interest and penalties as a result. It was even too late for me to offer to help, and that really irked me.

All of this made me think though. If it’s true that an accountant’s primary job is to keep their clients out of trouble with the Revenue and this is one of the most common ways in which they trip people up the least an accountant can do is send a letter or email to all clients at frequent intervals saying something like this:

“Dear Client,

I thought I should ask you to do something. It’s simple, but it’s important. Would you please always complete the stubs in your paying in books whenever you pay money into any of your bank accounts? And I stress, I mean any account, including business, personal and joint ones if you have them.

The reason is simple. The Inland Revenue always ask to see all these bank statements when they review a taxpayer’s affairs. And if they find any money paid into any account which cannot be explained by already declared sales or other recorded sources then they will always argue it is extra, unaccounted for income. And they seek to charge tax, interest and penalties on it.

That means bank lodgments you can’t explain might turn out to be very expensive indeed, even if they were entirely innocent. That’s why I thought I’d remind you to do this now because of all the advice I can provide to you this tip has to be one of the best I can offer.

If you want to discuss it with me, please do call.

Yours sincerely, Etc”

At the very least if you do this and it all goes wrong for your client and they are caught in this way you can say “I told you so” and save yourself a lot of embarrassment as a result.

Richard Murphy
AccountingWEB contributing editor Richard Murphy is a sole practitioner chartered accountant but was previously senior partner of a firm for 11 years. He has also been chairman, chief executive or finance director of 10 SMEs. A collection of previous articles by Richard on practice management themes is available in Practice Management Zone


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