Not claiming expenses to boost income

looknohands

I am self employed, is it legal to bump up my profit / income for borrowing purposes by not claiming expenses so my taxable pay is higher on SA forms required by lenders? I can afford to pay the tax on the expenses.

HappyMJ

looknohands wrote: »

I am self employed, is it legal to bump up my profit / income for borrowing purposes by not claiming expenses so my taxable pay is higher on SA forms required by lenders? I can afford to pay the tax on the expenses.

You can't bump your income up as that would be fraud but you don't have to claim for every single expense which you could have been entitled to which will show as a higher profit.

You've got to be sensible about it though. Not claiming for a new mobile for instance will be fine if you make some personal calls on it as it can be considered a personal expense. You must claim for the cost of goods that you have purchased to sell on at a profit or even to sell on at a loss. It really depends on what you do.

looknohands

I'm service based, I work as an animator. So it would be my claims for computers, software and also home office expense that I would ignore. I technically do use the computers for personal use as I speak to friends on Facebook whilst working and also the software I pay for (Adobe creative cloud) could be for hobby purposes, the room is also a spare room for guests and my girlfriends sewing room.

I do employ people occassionaly which obviously I would still pay as an expense, but otherwise my expenses are all tools for work really.

Savvy_Sue

I guess the other thing to be aware of is that you may be able to take the hit on your profits this year, but if next year your income is lower and you want to increase your expenses claim, you may find HMRC taking a closer look?

looknohands

Sure thing Savvy_Sue I see your point, it's for 2014 - 2015 am now submitting accounts for SA302 for mortgage and that's most recent tax year.

The equipment cost is the main thing and I wont need to purchase every year, was just a big payment last year, would maybe update equipment every four years, am willing to take the hit on tax as am earning more in 2015 - 2016. Computers, cameras etc can use them as personal items too so they aren't business expense if that keeps it legitimate.

The problem is if lenders went based on current accounts would not be in this situation as have already made total profit of 2014 - 2015 in first half of 2015 - 2016, c'est la vie!

Wouldn't expect HMRC to care, they're getting a few thousand extra in tax out of me anyway.

chrismac1

Quite often lenders will accept projected forecasts, especially when signed off by your accountant. In fact on about 50% of the mortgages I've helped clients to get so far in 2015 they have insisted on forecasts! Also from where we are now 2015/16 is only 6 months of forecast and 6 months of actuals.

Your alterntive strategy is not ideal as you're paying a bit too much tax. I would not worry too much about HMRC taking a closer look as HMRC are just not as savvy as Sue!

looknohands

Thanks Chris that's good to know, I submit my own accounts. Like to keep as simple as possible with few transactions, spend one hour adding invoices / receipts to Kashflow each month. Have roughly 5-10 invoices and 2 receipts (under £100) per month unless making big equipment purchase or outsourcing if I'm super busy, as mentioned in first post.

Would it be possible for me to give my own forecast given its quite simple business? Or can I hire an accountant look at my books one off for mortgage application? Without them trying to convince me I should be claiming for the sandwich I ate on my way to meet them!

densol_2

On your equipment ( plant ) Im sure you can delay taking the depreciation ( capital allowance ) in one year and carry it over to the next year. However as you mention its deliberately to " boost " your net income for mortgage rather than simple tax planning - It feels a little uncomfortable advising you of that.

looknohands

Thanks so If I had the computer and did actually use it for 50% personal and 50% business what am I supposed to claim as expense? Just seems like A bit of a grey area?

I also have cameras that I use for business but take on holiday 3/4 times a year and a phone I use for personal and business too. Seems as though if claim expense Its wrong and if I don't claim expense it's wrong!?

PlutoinCapricorn

For mixed-use items, you need to work out a percentage and be prepared to justify this if HMRC ever enquire about your expenses.

Many people must be in your position; I would give the true figures and estimate the next FY as honestly as possible.

chrismac1

Have you approached any lenders yet? If so I always ask them to spell out in WRITING exactly what the requirements are. For example "annual accounts" is not good enough, "annual accounts to 31 March 2015" meets the bill.

Even having nailed down the local folk to an exact specification, you may still be asked for more once the application goes to the underwriters who are the people who really make the call on whether it is yes or no. Beware clueless local staff who ask for information verbally in a non-specific fashion. By getting them to spell out in advance in writing exactly what they want, you avoid the scenario "Thanks for sending x, but what we really wanted was y."