Raw 04 - December 2008 - (Page 36)

RAW TAX SORTED haun was employed in the tax office and also spent a number of years running small businesses before he qualified as a tax accountant and set up his own tax and accountancy firm. Warning – YOU ARE AT RISK! Important – your systems need to be very good. Revenue inspectors use a practice called “breaking the records” – in plain English the taxman scrutinises your bookkeeping to find mistakes! If any are found, even if they are relatively minor, the taxman can simply say that they are not satisfied with the accounts. We are then embroiled in a formalised investigation process until the tax man is satisfied – this can be a lengthy and expensive experience. Often you may be encouraged by the Revenue to negotiate a settlement when none may actually be due, just to get the investigation closed. To protect yourself you need to have strong and robust financial systems. We believe the most effective way to achieve this is to purchase and use good bookkeeping or accounting software. Today the tax office is more likely than ever to investigate your returns and accounts, and under the Self Assessment rules fines can be imposed for just failing to keep good records. The problem with manual records and spreadsheet systems is they have no built in controls and checks, which the taxman expects as a minimum. This means small errors and mistakes can easily be made and even if there are no mistake the lack of controls means the taxman can always undermine the information. Why do Investigations start? Investigations can be started on a random basis – your name can just pop out of the hat! There are however some factors which could increase the risk of you being selected. Make sure you don’t draw attention to yourself by: • Obvious mistakes in your return • Sending your tax return in late • Paying your tax late S The Dangers of a Tax Investigation Shaun McGuinness is a tax accountant who specialises in helping small owner managed businesses. He set up TaxSorted with is wife Carole and is committed to making sure his clients pay as little tax as is legally possible! • Fluctuating profit margins and other accounting ratios • Large benefits in kind to employees, particularly directors • Large balance sheet adjustments • Cash trade • Business in a sector being targeted by the Inland Revenue • Disparity between money taken from the business and private living expenditure for owners/directors The inside track about Tax Investigations It’s true: Tax Investigations are a nightmare, no matter what the Taxman says. Quote from HM Revenue and Customs publication – “when we start an enquiry it does not mean that we think you have done anything wrong. We check some tax returns to make sure they are right or if we need further information to understand the figures. We also and only select tax returns for enquiry to ensure the system is operating fairly” Source IR160 This sounds pretty friendly, almost like a service. But make no mistake about it, the reality is very different! Investigations are by their nature confrontational and very stressful. Warning 1 - You have no choice You cannot prevent a tax investigation. If you are selected you MUST comply with the inspector’s proper requests for information. Warning 2 – You are guilty until proven innocent Unlike the application of common law, tax regulations treat you as guilty until you prove yourself innocent. Remember, under the current tax system (known as Self-Assessment) you assess yourself and have a legal responsibility to make sure your tax affairs are correct. As you will discover later, even a minor mistake on in your bookkeeping will be seized upon as “proof” that there is a problem. Warning 3 – The taxman can go back twenty years If there is a problem with one year and the taxman can show that it is “likely” to occur in previous years they can raise a bill going back twenty years and add interest with penalties (though they usually only go back six years). The interest is based on bank rate but penalties are left to the discretion of the inspection and can be up to double the discovered tax arrears. So a £1,000 mistake can result in a tax bill for one year of £400. Multiply that by six you get £2,400. Now add on a penalty and interest and you could have a final settlement of £4,800. Take note that all the taxman needs to do is show that there are reasonable grounds for believing errors would have occurred in past years based on the results of their investigation in the current year. They do not have to find actual errors in past years! Warning 4 - The taxman has more time The Self-Assessment system has freed up time for the tax office to do more investigations. In 2008 many more tax returns will be submitted online so there will increasing savings in processing time. This again will free up time for investigations. Warning 5 - The Tax Inspector is well trained If you are selected for an investigation you will be expected to attend a meeting as part of the process. Although you are not legally obliged to attend, if you do not the Revenue may 36 millionimpossible.com http://www.millionimpossible.com

Table of Contents Feed for the Digital Edition of Raw 04 - December 2008

Raw 04 - December 2008 Contents Imran Hakim Linda Klassen Brown Bradley Chapman Heidi Weir Colin Stroud Emma Thompson Raw Business Have a Care JPR Mortages TLB Events Alexander Davis

Raw 04 - December 2008

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