Staying in Revenue's Good Book

Article excerpt

THE LESS well-paid among the self-employed ostensibly have an easy time of it with the Inland Revenue, having only to produce a summary of their accounts - total income, total expenditure, total profit.

But for those who see this as an ideal opportunity to pile on their expenses, forget a few jobs they have been paid for or simply to look in despair at the empty file where their receipts and books should be and make a good guess - beware. Your bluff might be called.

The Inland Revenue investigates about one in 50 sets of accounts each year, including the simple accounts demanded of those earning less than pounds 15,000 per year.

This involves producing substantial documentation to back up the figures declared. If you need duplicate bank statements it can be an expensive business.

Take my friend. He was a student who worked part-time as a journalist to supplement his income and in the tax year l992/3 earned about pounds 6,000. He kept a record of all his earnings and some relevant receipts, and spent a day at the end of the year totting up his accounts. He completed his tax return, claiming less than a third of his earnings as expenses, posted it and felt righteous and smug.

But not for long. He soon received a letter from his local tax office demanding full accounts, with bank statements to back up his declared earnings and receipts for his expenses. Luckily he had kept his statements, and set about trying to work out where every deposit into his account originated.

He was interviewed by his tax officer who, reassured that she wasn't being cheated, was very helpful. She went through his expenses meticulously, but as well as refusing or reducing some, also pointed out expenses he should have claimed but had not.

Overall, the investigation proved a positive exercise, for him as well as the Inland Revenue. But it could have been a very different story and he was aware that the "nice" tax inspector would have been a lot less nice if his accounts and the evidence of his bank accounts had been widely at odds. …