Why is HMRC so interested in your client’s hobbies?


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We all want to help our families.  We want to encourage them to achieve more for them than we ever did for ourselves, so we support our family in their hobbies.  But why is that of interest to HMRC?

Question 1 – is it a hobby?

When we do things that we enjoy, we can often get submerged with everything about it and lose sight of what it is and where we are going with it.  If it is all work related and fully disclosed and taxed, then it may not be of any concern or interest to HMRC.  But if it is done outside of work then that can be a different matter.

Suppose you are a medical practitioner of some years’ experience.  But your hobby is renovating cars, or houses, the subject matters not.

You work all day as a medical practitioner.  Everything else is done at night and/or at weekends.  You make no money at it, in fact, it costs a small fortune.

Firstly, if you then sell the car or house, might it be considered a separate trade, and any profit or gain can become taxable.  Taxpayers may be oblivious to this.

Question 2 – how is the hobby being funded?

If the main trade is (say) that of an electrician (as opposed to the earlier example of a medical practitioner), you might use your connections to get the best deal and lowest prices.  Through your own company perhaps.  Claiming the VAT back.  Letting the business “pay for it” as it goes on the company’s account.  These are two separate trades and are to be treated as such for tax purposes.  Again, taxpayers may be oblivious to this.

Question 3 – The client say’s it’s all for business purposes and no personal element whatsoever? – is it?

For example, seeing the company’s logo on the horsebox is good for business.  The logo only cost a couple of hundred pounds.  The horsebox cost £200,000, plus VAT.  And it all goes through the company. The client says that it all for business purposes, the asset, is used as a talking point, a form of advertising.  Really? 

You might think all these situations are farfetched.  Wrong.  These are all instances where taxpayers have been accused of fraud.  Yes, fraud.

Without identifying any of my former clients:

  • One client renovated classic cars as a form of relaxation.  They were exhibited and sold nationally, and he was recognised for the quality of his workmanship.  HMRC also recognised him at a show and an investigation followed.  Whilst the expenditure was recorded, the client forgot to record any of the income.
  • Another client was a builder of houses.  HMRC were notified of numerous parking tickets being incurred by the same person next to a building site.  A building site where small retail units were being developed.  Again, whilst the expenditure was recorded, the client forgot to record any of the income.
  • The horsebox was very much the state of the art and included sleeping accommodation and a rest area.  The hotel owner used the rest area to interview potential staff to work in the UK hotels supposedly.  All the costs were claimed as a deduction against taxable profits, there was no income.

These tax irregularities are capable of be rectified.  Timing is important.  If a taxpayer goes to HMRC and not the other way around, penalties can be halved.

Anyone seeking help can call me on 07979 313 010 or…

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