Tax return question

dwilks1978

Hello

I'm new to all this so please forgive what may be a very stupid question.

My question is about tax returns. A relative of mine was filling in his tax return and I saw this and thought to myself that a lot of it seems to be taken on trust. You enter how much YOU SAY you have earned, you do the calculations of the tax that you say you are supposed to pay and then you make the payment.

It's as if you make all the decisions and the authorities simply accept it and assume you are being honest.

For example, if someone was paid cash for doing work and didn't declare it on the tax return then how could the authorities ever find out? I would have thought that as long as they don't pay the cash directly into their bank account and use the cash for other things: shopping, paying bills, buying petrol or even using cash to make overpayments on their mortgage then there is no way the authorities could know.

It seemed as though someone filing a tax return could put down anything they liked and there was no way that it could be properly investigated or questioned.

Am I right? The whole system seemed open to misuse.

Thanks

Rolo_Tomasi

Yes......its a 'Self Assessment' Tax Return which is initially accepted at face value by the Revenue. They then have about a year in which to ask questions about the Return but obviously they cannot have a detailed look at every one. A certain number are selected entirely at random each year but all Returns are 'risk' assessed to determine the possibility of errors. We are led to believe that the Revenue have quite a detailed computer system which examines each Return and compares the income and expenses against previous years and other, similar Returns to throw up any anomalies.

If your Return is enquired into then this is a very intrusive process and no matter how careful you are, it is very difficult to hide undeclared earnings. To take your examples, when the Revenue looked at your bank statements, if they didn't see any shopping, petrol or other bills being paid they would assume that these must have been paid in cash. If cash withdrawn from the bank is not sufficient to cover the amount they believe you are spending on these items then you must have underdeclared your income.

If they can prove that you have been dishonest you have to pay the tax, interest on late payment and a penalty of up to 100% of the amount due. They would also assume that any errors found in one year must also have been made previoulsy and you would have to pay the extra tax, penalties and interest for these years as well.

Oh and there is also the fact that in serious cases you could end up in prison - Lester Piggott, Ken Dodd etc.

d712

This is a point I've wondered about myself in the past if I was ever in a position to complete a tax return.

It's an interesting response as well, surprisingly cautious considering it comes from the guy who thinks he can get away with it

fengirl_2

Just to correct part off what Rolo sayes. HMRC do not have to prove you have been dishonest. The onus is always on the taxpayer to show that his or her return is correct. This means keeping and maintaining accurate and bomb-proof records of all income and expenditure. Once the Inspector has established that your records are incomplete or lacking in some way, the way is open for him or her to estimate your liability and charge interest and penalties accordingly.
Anyone in the public eye and at the top of their profession who commpletes tax returns year after year with 'per accounts £10,000' as income is begging to be investigated.