hmrc check

freda11

my self employed son in law runs a small business and has received a letter from hmrc saying they will be ringing him to ask a few questions about his business records. he has been in business 3 years and has always submitted his tax return on line in time. the first year he paid around £600 tax but the second year he did not earn enough to pay tax, that's probably why they are investigating. he does his books on the computer but his computer crashed a month ago and he had not backed anything up!!!! we have proof from the pc repair man that the comp crashed a month before this letter arrived. my worry is now how can they check his figures etc, will they go through all the purchase and sales invoices, do they take them away to do this, do they check every purchase invoice has a sales invoice against it? there are hundreds of invoices! thankfully they are all neatly filed away. my son in law is worried as to what questions they ask, what if he can't answer them, he's only young and this is very daunting to him. he has now decided (altho horse and stable door come to mind) that he is going to employ a tax advisor from now on to handle his books and the tax returns. he is going to see an advisor this week.

martindow

Ouch. He needs to recreate his accounts from the invoices and receipts to justify the figures on his tax returns. And make sure he prints them out. You really do not want to provoke an inspection. HMRC will not be amused if they come out to check and find just boxes of receipts and invoices.

In the future I would suggest doing the accounts and printing out at least monthly.

freda11

thanks, trouble is 2 years worth is a lot of invoices and the tax office is phoning any day! what do you think are the chances of them doing an inspection?

CKhalvashi

freda11 wrote: »

thanks, trouble is 2 years worth is a lot of invoices and the tax office is phoning any day! what do you think are the chances of them doing an inspection?

If they're in order, not a lot.

We've been investigated for several things (from tax, to money laundering), and the moment everything's added up, there's not been a full inspection.

CK

martindow

freda11 wrote: »

thanks, trouble is 2 years worth is a lot of invoices and the tax office is phoning any day! what do you think are the chances of them doing an inspection?

But you urgently need to make up accounts otherwise you are likely to provoke an inspection. If you know they are about to phone you presumably something in the tax returns has already caught their eye.

Is there any possibility of someone being able to extract data from the computer's hard disc?

Otherwise as you have invoices and receipts you need to redo your accounts. It is a daunting task, but you need to set to and have accounts ready to present to them if the worst comes to the worst.

If you cannot produce accounts they will not trawl through boxes of receipts and invoices. They will 'estimate' your income and tax liability which is unlikely to be in your favour.

Pennywise

freda11 wrote: »

my worry is now how can they check his figures etc, will they go through all the purchase and sales invoices, do they take them away to do this, do they check every purchase invoice has a sales invoice against it?

No, the tax inspector won't do any of the donkey work. Your son will have to reconstruct his records and try the best he can to get them to agree as far as possible with the figures he put on his tax returns. The tax inspector may give him time to do this given the circumstances.

Has suggested above, has he asked an IT firm to have a look at his PC to try to salvage some or all of the files - that seems like the best option to save him a lot of time.

But, if this is just a telephone question/answer session at this stage, it may not come to a detailed review anyway. Could well be just a tax bod working down a list of questions and the fact that the records appear lost may never come to light. I've heard of some questionnaires being as vague as "do you employ staff", "what is your turnover", "do you have cash sales" - the questions may be conducted by a relatively junior tax bod, the answers to which would then determine whether they pass the file onto more senior/specialist tax officials for a proper review.

Brassedoff

He needs to sort this out and quick.

Then give him some advice, back them up, print them off and get a spare computer.

Not being funny, do you think "my computers blew up" will be the first time they've heard that? Do not provoke an inspection. As a business consultant I have seen more than a fair few and I prefer root canals than the tax man crawling out of my bottom!

nonnatus

Brassed Off is right.

Every year the HMRC picks a number of businesses at random to have a closer look at. Here in the South West, we were told that this year, they would be looking at Hairdressers, Taxi Drivers and Fast food outlets, all businesses with the potential to be "under declaring" I guess?

It may be different according to region?

The initial foray gives them a good idea of whether to proceed to a full investigation (is it worth their time and money maybe...)

I would imagine that a Red Flag would be raised if they were told that some records / information was missing.

I think the best thing would be for your son to take everything he has to a GOOD accountant and let them advise him. It WILL cost money, but maybe not as much money as it would cost should HMRC find "issues".

In my experience (I was investigated TWICE when I ran Pubs :cool:) the HMRC lot are Firm but Fair. They're not trying to "catch you out", they just need to ensure that you are running a Professional business and paying the tax that you should. A good accountant has saved me FAR more money than he costs.

Good Luck

antrobus

freda11 wrote: »

my self employed son in law runs a small business and has received a letter from hmrc saying they will be ringing him to ask a few questions about his business records....

Then it's probably a Business Records Check.

HMRC have a programme of Business Records Checks i.e. they are contacting small businesses to confirm that they are keeping adequate accounting records.

http://www.hmrc.gov.uk/businessrecordscheck/

It's not an investigation, or necessarily a prelude to an investigation.

nzmegs

My husband had this call and it was very straight forward. They might ask him about his record keeping and he might want to tell them he is in the process of recreating his records - but also say how he kept them in the past.

However mostly it is just a multi choice thing so he may not have the opportunity to give any specific details.

he will be invited to a class for record keeping too. it might be worthwhile him going to learn about back-ups

morgani

I agree with @antrobus - seems like a business record check to me.

This will be about how often he writes up the records and how much cash is handled amongst other things.

The computer crashing is irrelevant at the moment (I wouldnt mention it to them anyway) as this can be sorted and is not his normal practice.

The important thing is he learns from the mistake of no backup. Cloud backup services of 5gb+ are available for free which should cover most people.