Red Warning on self assessment

hm1905

Hi,
I have been working on my self assessment today and when I got to the allowable expenses, a large red box appeared asking me to check if my figures were correct. It disappeared when I went out and back into that section, but I’m worried now. It was a big red warning box at the top of the screen. Has anyone else had this or know anything about it. Thank you

Mr.Generous

Yes, you can go ahead and submit with that level of expenses if you want a full tax audit.

DRS1

Problem with self assessment submission — MoneySavingExpert Forum

hm1905

It’s a sole trader tradesman. £63k turnover and £39k expenses. Thanks

Nomunnofun1

hm1905 said:

It’s a sole trader tradesman. £63k turnover and £39k expenses. Thanks

If you’re happy with your entries and are able to submit the return I don’t see what else you can do. 

hm1905

Thank you. The figures are correct,  but now concerned re the comment above about a full tax audit.  I didn’t realise there was an expected ratio on turnover and expenses. What would be considered normal, 50%? 

Dazed_and_C0nfused

hm1905 said:

Thank you. The figures are correct,  but now concerned re the comment above about a full tax audit.  I didn’t realise there was an expected ratio on turnover and expenses. What would be considered normal, 50%? 

No two business are identical so any "expected" ratio won't fit everyone.  And there can be unexpected expenses in a given accounting period.

It is up to HMRC to decide if they wish to open an enquiry (investigation) into your return and they will write to you if that happens.

I think the normal deadline for them to start an enquiry is now 12 months from when you file the return.

TheGreenFrog

I have come across these red boxes many times before on expenses deductions - for example property maintenance costs.  The impression I got was that they are just a method of getting people to double check their entries and that they are triggered by ratios above the expected norm.  I have never had any comeback from HMRC. 

hm1905

TheGreenFrog said:

I have come across these red boxes many times before on expenses deductions - for example property maintenance costs.  The impression I got was that they are just a method of getting people to double check their entries and that they are triggered by ratios above the expected norm.  I have never had any comeback from HMRC. 

Thank you, appreciate your comments. That’s what I thought might be the case, but when asking on another forum, I have been told all sorts, including the suggestion that it means a full audit and that I should run for the hills - not particularly helpful.

Bookworm105

hm1905 said:

means a full audit and that I should run for the hills - not particularly helpful.

HMRC computer has huge amounts of data regarding each type of declared business and therefore not difficult for it to detect "unexpected" ratios. What human HMRC staff choose to do with that warning if the tax return is submitted is down to them
 
63k turnover means the max tax at stake is approx 12k - 13 k at 20 - 40% bands. One hopes that is enough to get a tax inspector out of bed, BUT, that of course is rubbish as the warning is you are above "expected" because your ratio is "only" 38% gross profit margin. Plenty of businesses would drool at that figure, others would not get out of bed.
No one is going to divulge HMRC checking procedures on a public forum, so I fail to see how being told you may or may get a "full" audit is either helpful or unhelpful, it is just an obvious risk depending on your declared type of business and does what you did, and also causes you to think exactly what you have done so: have I got the figures right?

Grumpy_chap

hm1905 said:

It’s a sole trader tradesman. £63k turnover and £39k expenses. Thanks

Bookworm105 said:

 
"only" 38% gross profit margin. Plenty of businesses would drool at that figure, others would not get out of bed.

I am not sure that the 38% gross profit margin is a correct interpretation for a sole trader.
I read the OP's figures as £63k turnover less £39k expenses means £24k effectively as the OP's salary.
Whether the expenses are plausible or not will depend on the business sector that the OP is trading (different expenses for a builder than an office-type WFH role) and any exceptional costs that landed in the accounting period (which can distort any business expenses ratio).