Is it ok to NOT claim expenses on SA return?

billymadbiker

Hi all,
Just about to submit my 2010-2011 self-employment sa return..

My turnover for 10-11 is slightly higher than 09-10.
My profits are lower however, ie my 'personal income' is about 20% down on the previous year.

Although this will give me a lower tax bill which is good, I would like to get a mortgage in the next couple of years.

The previous (09, 10) returns have shown the kind of profits I would need to apply for the mortgage and I am a bit worried that showing a decline in profits will worry the bank?

I suppose my question is: would it be considered fraud to 'not claim' all my expenses so my profit (on the tax return at least) is higher?

To be honest, I use a room in the house as an office and I have never claimed that as an expense. Also, if I have lost the odd recipte for something I have not claimed for that either so I suppose I have been doing it anyway...

Secondly, if it is ok to miss expenses off the return, would it then be fraud if I used the returns as proof of income to apply for a mortage at a later date?

Finally, If, once I had a mortage, I then filled in 'correct' returns I presume the sudden drop in taxable income will trigger an inquiry with hmrc. If however, I can prove the laters returns are correct, are they likly to be worried that I have intentionally paid more tax than I had to in 2-3 previous years?

Thanks!

dori2o

You may be able to prove the figures to HMRC when you make the amendment. So whilst it isn't tax fraud, your mortgage company could cause you some trouble if they found out you had falsified income details in order to be granted a mortgage. They could even, in the extreme, withdraw the loan and ask for it to be paid in full.

billymadbiker

I wasn't thinking about amending the return once submitted, rather just start claiming all the allowable expenses on returns submitted in the years after getting a mortgage.

Also, if the only way I have of proving my income to the bank is my tax returns then how would they find out I had not given them the correct details? Although, I am not sure why they need my returns as proof of income as I have banked with them for 10yr+ and they can see what's going in and out anyway..

jimmo

Mortgage lenders are able to make security checks with HMRC. If you look very carefully at the terms and conditions of your mortgage application there will be something in the small print whereby you authorise HMRC to disclose information to the mortgage company on request.
These are normally done before they make an offer but some are done after the event as part of the mortgage lender’s audit procedures.
There is nothing wrong, in tax law, in “forgetting” to claim some expenses because you will probably have to pay more tax than you need to.
However you suddenly “remembering” the expenses after your mortgage has been granted really would be risky.
The risk may be small but it is a risk and, whilst not directly related to your question, I do know of a 30+ year career taxman who was instantly dismissed, with complete loss of pension rights, for helping a friend to manipulate his tax liability in a similar way to your plan.

dori2o

OP, For further advice on this (regarding the mortgage) go and ask the same question on the Mortgage board. I'm sure many on there will tell you it is a very risky game to play.

chrismac1

For once I am in total agreement with the 2 previous posters. What you are doing is akin to what some businesses in my town did with their business insurance. 80% of the time it's no problem and you've kept the premium down. Then you get flooded and the insurers say "You paid 60% of the premium you should have paid, the repair bill is £200k so here is £120k." Not pretty. Messing around like this with big ticket items like houses and business premises is not sharp or clever, just stupid.

le_loup

Sounds like an attempt at fraudulent practice to me.
By all means pay more tax than you need, but how do you account for the increased level (business expenses) of outgoings to your mortgage company?

billymadbiker

I am not talking about backdating any claims for expenses.

I currently do not claim any tax allowance on 1 room in my house that I use only as an office.

If I now hand my last 3 years returns to the bank as proof of income for a mortgage I suppose this would also be 'fraud' as my personal spending looks higher than it actually is? ie. I have used some of my personal money to pay the rent, electric etc on running the 'office' when actually this should be a work expense and be deducted from my annual 'income'

What I am asking is, how far is it ok to go with this?
For example, I also have 1 car and 1 van. I use the van just for work so currently claim 100% of the running costs on my sa return.

Now, if I use the van to stop in the shop and get milk on the way home then that would be personal use. How wrong is it if, on my next return I decide I might use the van for 25% personal use and only claim for 75% of the running cost?

As the van is one of my main expenses (about 8k/yr) I would be 'under-claiming' by 2k or so. This would be about the right amount to give me the same 'income' as the 2 previous years.

Although hmrc would probally not mind one bit if I paid more tax it's the bank I am worried about (ie. if the following year I earn 2k less?)

Having said that, what would happen if we were both employed, got a mortage and then my other half decided to have 5 years off work to have babies? Would that not be the same sort of situation? What would the bank do if one of us became unemployed after getting a mortage? Do you have to tell them or do they not worry if you keep making the payments?
Thanks!

dori2o

billymadbiker wrote: »

Having said that, what would happen if we were both employed, got a mortage and then my other half decided to have 5 years off work to have babies? Would that not be the same sort of situation? What would the bank do if one of us became unemployed after getting a mortage? Do you have to tell them or do they not worry if you keep making the payments?
Thanks!

Not in the slightest, as the information you gave to the mortgage provider at the time the mortgage was issued was factual.

What you are talking about is lieing about the value of your income in order to get a mortgage. When you take on a mortgage you have to sign to say that the information you have provided is correct to the best of your knowledge. If it is not, then the bank/building society would have the ability to claim from you the extra costs involved in a) recovering the mortgage in full if they decided to cancel,. or b) could charge you extra money based on the increased risk they have taken on after finding your income is lower than first declared.

At the end of the day HMRC won't give a hoot if you decide to pay more than you are expected to pay.

But what you are talking about is fraud.

Seriosuly, I suggest you ask this question on the Mortgages/Endownments board, you will find they give much the same advice. In fact I'll have a mod move the thread for you.

Murdina

It is always going to be a bit of a moot point what expenses do and do not go in accounts. If you ran a larger business and had an accountant you might find that the accounts they drew up showed quite a different figure for trading profit to that on which you pay tax - a standard part of what an accountant does is adjust the trading profit to get to the tax adjusted profit (depreciation for example is standard in a properly drawn up set of accounts but not allowed for tax). A bank would prob go by the trading profits (though in my limited experience of d/w them professionally and privately for mortgages the average person reviewing a self-employed application is not very clued up on how accounts work or how tax works which may explain why they have ended up lending to those who cannot afford the loans and are now relying on HMRC telling them what the profits of the business are).

Having said that if you start messing around with expenses claims year on year this will produce an odd pattern of profits which may lead to HMRC enquiring into your affairs and poss taking the view that if you did not claim for something one year you don't really incur that expense for business at all.

So on balance don't try and manipulate things as it'll only lead to trouble.

billymadbiker

Thanks for the advice, looks like a bad idea then!

Forgetting about that and moving on..

On my last return (09-10) :
hmrc have my 'profit from self-employment' at 26k.
My turnover was38k and I claimed allowable expenses of 12k hence the 26k

Now, my own paper work shows that for 09-10 I spent 23k for my own use plus spent another 6k on tax payments so a total personal spending of 29k.

Would the bank look at 29k as my pre-tax income (as that's basically what I got 'paid' over that year or would they use the 26k number from hmrc as that is the amount I actually had to pay tax on?