Is it illegal to *overstate* your income on a tax return?

Pete_J75

(I am not sure if this is the correct place to post this but there doesn't seem to be a section on paying MORE tax..)
Is it illegal to overstate your income on an annual tax return if you're self-employed? Or could you get into trouble in any way? I am not talking about lying about revenue, rather declaring revenue accurately but artificially lowering costs by not declaring certain business costs. The reason is that although i could pay more tax in the short run if I am applying for a mortgage in a few years' time it might allow me to borrow more money. I am just starting out as self employed and have just filed my first tax return (accurately). As it was only for 6.5k I think a full blow audit is unlikely any time soon but just want to consider the full implications 

theoretica

I think it fits the definition of fraud - much better to really grow your business profits!

from https://www.cps.gov.uk/legal-guidance/fraud-act-2006

Fraud by false representation (Section 2)

The defendant: 

• made a false representation 
• dishonestly 
• knowing that the representation was or might be untrue or misleading 
• with intent to make a gain for himself or another, to cause loss to another or to expose another to risk of loss.

The offence is entirely focused on the conduct of the defendant.

 

[Deleted User]

Pete_J75 said:

(I am not sure if this is the correct place to post this but there doesn't seem to be a section on paying MORE tax..)
Is it illegal to overstate your income on an annual tax return if you're self-employed? Or could you get into trouble in any way? I am not talking about lying about revenue, rather declaring revenue accurately but artificially lowering costs by not declaring certain business costs. The reason is that although i could pay more tax in the short run if I am applying for a mortgage in a few years' time it might allow me to borrow more money. I am just starting out as self employed and have just filed my first tax return (accurately). As it was only for 6.5k I think a full blow audit is unlikely any time soon but just want to consider the full implications 

During the process, at the end you make this declaration. Probably answers the question.
it doesn’t answer the question regarding mortgage fraud though.

Declaration

I declare that the information I’ve given on this tax return and any supplementary pages is correct and complete to the best of my knowledge and belief.

I understand that I may have to pay financial penalties and face prosecution if I give false information.

FaceHead

Whilst illegal, it might not be prosecuted.

If you're happy to mislead the revenue, and deceive the bank into giving you a loan you can't afford, you might as well just falsify the documents. There are websites which actually offer fake documents for the purpose, or in the age of just uploading photos, manipulating them is probably within your abilities.

Obviously 1st party CIFAS marker if caught and no hope of any credit for the foreseeable, and if you did by whatever means get a mortgage you can't afford you might find that, well, you can't afford it. 

macman

Unbelievably stupid idea. You'd have to nearly double your trading profits anyway (to more than £12.5K) before you pay any tax at all. HMRC aren't stupid. They have software modelling for every type of business, which will have a typical ratio between turnover and allowable expenses. To distort that to boost your profit significantly without falsifying the turnover would mean reducing your expenses to a fraction of the real figure.
Even supposing you fraudulently obtain your mortgage, how do you intend to service it without the income it was supposedly  based on?

MalMonroe

When you are self employed, and I am, you have to keep accurate financial business and personal records. It's mandatory. You have to keep them for 5 years and HMRC can ask to see them at any time. See here :  https://www.gov.uk/self-employed-records  

What you say here, "I am not talking about lying about revenue, rather declaring revenue accurately but artificially lowering costs by not declaring certain business costs" makes no sense at all because you ARE talking about lying about revenue. And if are thinking of trying to outfox HMRC, good luck with that.

If you've only earned £6.5k in a year you won't have to pay tax. But if that's your only income, I'm not sure how you've managed to live.  

Attempting any kind of jiggery pokery with HMRC just isn't worth it. You are not cleverer than them. Although I admit it can seem that way sometimes.

Jeremy535897

Whilst the concerns are overstated from an HMRC point of view (they are usually quite happy for you to overstate profits, and don't have models for every type of business), the real issue is that you would be attempting to defraud the mortgage lender. Do not do it.

Pennywise

Jeremy535897 said:

Whilst the concerns are overstated from an HMRC point of view (they are usually quite happy for you to overstate profits, and don't have models for every type of business), the real issue is that you would be attempting to defraud the mortgage lender. Do not do it.

I'd partly agree.  Trouble is that I've seen in the past where a client has deliberately left out some expenses to inflate their profits and then a few years later, suddenly start putting loads of extra expenses through the tax return (when they have to start paying tax or have secured their mortgage), and it's triggered an HMRC enquiry into why expenses have suddenly increased, as they do sometimes compare year on year figures to check for anything that looks "odd".  

Jeremy535897

Pennywise said:

Jeremy535897 said:

Whilst the concerns are overstated from an HMRC point of view (they are usually quite happy for you to overstate profits, and don't have models for every type of business), the real issue is that you would be attempting to defraud the mortgage lender. Do not do it.

I'd partly agree.  Trouble is that I've seen in the past where a client has deliberately left out some expenses to inflate their profits and then a few years later, suddenly start putting loads of extra expenses through the tax return (when they have to start paying tax or have secured their mortgage), and it's triggered an HMRC enquiry into why expenses have suddenly increased, as they do sometimes compare year on year figures to check for anything that looks "odd".  

Possibly so, but the risk of a fraud conviction for deceiving a lender in respect of the original understatement is far more serious than HMRC finding out that you understated your expenses in the past, so they owe you money.

Grumpy_chap

This idea of the OP's seems entirely nonsensical.
OP is a sole-trader and plans to "forget" some valid expenses from the accounts so that they can report high profits.  This results in a high level of tax being paid that would not otherwise be due.
"Forgetting" expenses does not alter reality, but the extra tax bill paid reduces the remaining assets that the OP has.
The OP then hopes to use the higher "profits" to support an increased mortgage application.  Sounds like fraud.
Paying the higher tax bill means that the OP has less deposit.
"Forgetting" the expenses does not alter the reality of those expenses, so the OP's agility to repay the mortgage that has been fraudulently obtained is not secure.
When the OP cannot repay the mortgage, I assume the OP get's the house repossessed.

csgohan4

Lenders' aren't stupid either, they usually want at least 3 years SA302's and compare and if they see a big jump in the latest accounts, red flags will be ringing, unless they can justify it