I only have 3 years of reciepts for tax returns?

evosy1978

Hello all,

Ive been self-employed for many years now. Ive come to sort through everything and I only have 3 years of books.

What would the tax man say about that, if they asked to see my books? Would I be likely to get a fine?


Thanks

BoGoF

Have you been submitting tax returns for the 'many years' you have been self employed?

PlutoinCapricorn

Are the three years the most recent tax years?

How much money is involved?

Has your profit been much the same for each year of self employment?

Are the expenses much the same each year?

evosy1978

Sorry I was abit vague.

I did do returns for the other years but I unfortunately dont have the evidence anymore.

Yes I have the 3 most recent years

Total Earnings between 26,000 and 28,000 and expenses of around £3000 for each year. So yes more or less the same profit margins.

These figures are more or less the same for the previous years which I dont have the evidence of anymore.

PlutoinCapricorn

A good place to start is to try to calculate how likely HMRC are to decide to enquire about some aspect of your returns. And if they did, how likely this is to turn into a full investigation. If they did investigate, is everything in order apart from the lack of receipts?

HMRC do spot checks; they also concentrate on occupations that involve cash e.g. taxi drivers; they may be triggered by a return where the income/expenses are very different from other years', which is why I was asking. They may compare your figures with someone in a similar business and contact you if they have a query. I have heard that filing your tax return very late or very early might alert them too.

When I first registered as self employed, HMRC sent a letter that mentioned the importance of submitting correct figures and said that when they do decide to look into someone's return, they frequently find under declaration of income and claims for expenses that are not legitimate.

So it is not straightforward. A lot depends on whether or not they decide to investigate, and how many years they want to go back. If everything is in order for the last 3 years, and you have not been claiming expenses that you should not be claiming or not declaring income, you should be ok.

If they did ask about earlier years, if the expenses are much the same as for the most recent 3 years, they would probably accept your figures. It depends on what you are claiming for. HMRC do not want people to think that they need not keep receipts: that would be an invitation to cheat!

If they did not accept that all of your expenses were legitimate, or had even been incurred, you would have to pay them the tax that was offset. There might be interest and penalties too. It might depend on whether they think it was deliberate or a mistake.

By the way, why haven't you got receipts?

chrismac1

On average in any given tax year, 3% of self-assessment people get an enquiry - source for this is various different accountancy forums - yes they exist, sad but true!

However, certain sectors are a lot more likely to see HMRC in person - construction is the biggest, then cash businesses especially pubs, taxis. Also if you have risk factors in your business - for example IR35 issues, you are more likely to get a visit.

Now we come to the issue of keeping proper records. As a Cockermouth accountant, various clients have a cast iron excuse for not having all chits - namely they washed down the Derwent in November 2009. However this does not stop you from putting together accounts, especially where those people have business bank accounts and use them well i.e. not much personal stuff in there and not much business stuff in the personal account.

Likewise I have various clients - surprise surprise they tend to be in construction and pubs! - who are poor at keeping and filing supplier invoices. My job is to pull together a set of accounts and not do HMRC's job for them. If I can see evidence of the spend I am putting it in the accounts. What I tell the clients is this:

1. Strictly you need the invoices, especially if you are VAT registered and claiming input tax.
2. If the spend was with Joe Bloggs down the road and you paid cash and get an enquiry, you may well end up paying extra tax.
3. But if it was with a large company you can feel more relaxed. All businesses have a duty to keep records for 6 years. Bad news for you if you've lost some, but at least with a big company you can ask for copies if you know HMRC are calling. If they are not keen to produce a copy for you, mention the Data Protection Act and see if they start jumping.

PlutoinCapricorn

3%? That is more than I expected. I wonder how many turn into full investigations?

I always scan everything, and shred and recycle after 6 years. One MSE poster lost all paperwork in a fire, and someone else's was thrown out by a family member while clearing out a shed, so accidents do happen.

I forgot to say that another possible trigger for an HMRC enquiry might be if someone suddenly re-filed returns for past years with a lot more expenses or lower income, making a big tax refund appear due.

evosy1978

Just wanted to say when I say Ive lost my evidence what Im on about is my deisel and tools receipts for each year - the £3000 figure I mentioned. I work for one company who pays me and pays my tax for me, so I can prove my earnings etc.

Thanks for the replies.

PlutoinCapricorn

If I were in your position, I would not worry too much about this. It seems that your income and expenses are much the same each year.

If it has not already been done, I would be extra careful with the FY 2010/11 return. I would scan everything from now on and keep the paperwork for 4 years. I would be extra careful declaring the correct income, and bear in mind that even if receipts exist, you have to justify the cost as a business expense.

I would worry about an enquiry only if it happened, and if it did it would probably be when you file the next return. If that is ok, there will be no reason for them to go further back.

The worst thing that can happen is that you owe them some tax. They are more lenient with penalties if you co-operate and admit that you made mistakes.

Really your accountant should be telling you all this.