Let’s face it, life can hurtle along at breakneck speed. Life can be hard and a distraction to current events – the unscheduled call or meeting, and don’t forget the HMRC deadline.
Definitely don’t forget that last one!
When life does actually go to plan, it’s wonderful.
And then there is Murphy’s Law – anything that can go wrong will go wrong.
You are constantly reminded to make a note. But on paper – how old fashioned. So you put it in your diary and it’s there 24/7.
Don’t forget to make a note.
So you do…: ‘Note to self…’
“£34,000 received from whoever in payment for something or other. Personal. Not taxable. Tell the accountant to put the explanation in with the company’s books and records. It will give the business a much-needed cash injection from me.”
There; all done. That explains everything. The accountant will be happy. And so will HMRC if ever they ask.
But what do you put in the note or should you put in the note? A cryptic comment to remind you to do something or a full-blown note including all the facts – dates, times, who, where, why.
“Oh, I will do it in a minute” or “I’ll add the facts and figures tomorrow”. But as we all know, tomorrow never comes.
Did you really mean to use the term “cash injection”? HMRC might find that interesting in itself. Cash is not as common as it was say; pre-Covid.
THEN…
Knock, knock
HMRC come along. Sometimes it can feel like HMRC operate in a parallel universe. Days/weeks/more often years after the event, HMRC will want to know chapter and verse on a particular transaction or series of transactions. Saying “I don’t know, I’ve been to bed since then and forgotten all about it” will not be sufficient.
Now think back to that note. Where did that money come from and what exactly was it for again? It’s two years ago (or more). It must have been a lottery win or something. Maybe a friend or colleague repaid a debt they owed. Perhaps the bank will know because you never got round to adding those important facts and figures that you meant to but just didn’t have time for.
Guess what, the bank can only confirm what you already know. The date and the amount. Not really very helpful.
Time to pay up
HMRC now expects you to pay tax on it. Whoa, that’s not right, that’s not fair.
£34,000 at 40% plus interest and a penalty. Time to cough up £15,000 thank you very much.
And then HMRC come out with more related questions. What’s this, what’s that. Another £20,000 for those items, thank you very much.
It gets better
“Now, can we look at the rest of your business in the previous year. And whilst we are at it, can you provide me with all your personal bank and building society statements for the same period. Please.”
All the while you’re thinking “I forgot to make a proper note”.
This is a regular occurrence as part of a tax investigation. You’ve done nothing dodgy, but there is no plausible or supportable explanation against transactions.
But what if the same thing is found in another year, or there are twenty such items in the same year, or money is in a personal account when it should have gone into a business account or vice versa?
Now we move into a different territory altogether. The accountant says it’s a valid challenge by HMRC. What on earth does that mean?
Both you and the business are now under enquiry. An investigation. This is going to cost. If not in terms of money, then in terms of everyone’s time.
Codes of Practice
HMRC sends out Factsheets and Codes of Practice like confetti to help (they really do try!). More questions. Or rather, more unanswered questions.
You’re asked to a meeting with the taxman – you haven’t got time for one of those. It was only £34,000, but now there’s a few more items.
Systematic failures according to HMRC? What on earth are those? It’s a different language. A different world and one you don’t want to be in. Better leave it to the accountant to sort out, surely they will know, right?
But the accountant wasn’t there. The accountant may have no idea as to what it related to or where the money came from.
A further escalation
Fraud? Tax evasion?
Al Capone was put away for tax evasion. Now it’s getting beyond a joke. Accusations fly around. Tempers flare up. Relationships become strained. Your partner looks at you accusingly now – what an atmosphere to go home to.
The accountant is sacked for getting it wrong.
The moral of the story
Don’t forget to make a note. Now. Things can escalate quickly without the right facts, figures and explanations.
If you are the accountant, maybe you should ask to see all the bank accounts, not just those of the business each year. Maybe you should challenge the £34,000 etc. as soon as possible before the mists of time descend.
Maybe we should remind clients to make a note about such items. Now.
How I can help?
Resolving challenges or disputes from HMRC at every level is what I do and have done for many years. I can look at what HMRC has already done to make sure they have acted correctly. Moreover, I can often anticipate what HMRC will do next. Knowing what is coming down the track can be helpful.
I offer the first two hours of my time for free. It can take that amount of time to understand the journey so far. For the taxpayer, it’s a second pair of eyes. For the accountant, it can protect the relationship with the client.
Anyone seeking help can call me on 07979 313 010 or email me at paul@pmc.tax.