Red Warning on self assessment

hm1905

Grumpy_chap said:

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).

Thank you. Yes, your interpretation of the figures is correct. I am an Electrician, so buying a lot of materials. Around £29k on those plus mileage, insurances, professional body membership, home as office. Thanks again.

Grumpy_chap

For future peace of mind, have you considered engaging the services of an Accountant?
They will, at the very least, undertake a cursory review of expenses you are claiming to draw your attention to anything that should not be claimed or may not be claimable and challenge / seek verification before the tax return is submitted.

I also feel, though not certain, that engaging the services of an Accountant would work in the individual's favour should the HMRC investigate and find an error / incorrect expense claim.  The individual would still be liable for any resulting underpaid taxes but I do feel that any penalties should be mitigated as the individual can truthfully state "I'm an Electrician (or whatever) and not a tax expert so I engaged an Accountant to give professional advice - that is my due diligence".  I'd like to think the HMRC would take that into consideration as evidence of not seeking to deliberately claim anything that is not permitted.

mybestattempt

Grumpy_chap said:

For future peace of mind, have you considered engaging the services of an Accountant?
They will, at the very least, undertake a cursory review of expenses you are claiming to draw your attention to anything that should not be claimed or may not be claimable and challenge / seek verification before the tax return is submitted.

I also feel, though not certain, that engaging the services of an Accountant would work in the individual's favour should the HMRC investigate and find an error / incorrect expense claim.  The individual would still be liable for any resulting underpaid taxes but I do feel that any penalties should be mitigated as the individual can truthfully state "I'm an Electrician (or whatever) and not a tax expert so I engaged an Accountant to give professional advice - that is my due diligence".  I'd like to think the HMRC would take that into consideration as evidence of not seeking to deliberately claim anything that is not permitted.

While I understand your thinking here, HMRC might not accept a taxpayer took "reasonable care" by simply engaging an agent:

https://www.gov.uk/hmrc-internal-manuals/compliance-handbook/ch84540

Grumpy_chap

mybestattempt said:

While I understand your thinking here, HMRC might not accept a taxpayer took "reasonable care" by simply engaging an agent:

https://www.gov.uk/hmrc-internal-manuals/compliance-handbook/ch84540

I agree.

Obviously, the onus is on me to provide full information to my Accountant.  The Accountant can only then assist the assessment.

In my particular case when preparing my tax return this year (for 2023-24), I provided a spreadsheet with all the data and back-up evidence for the big ticket items.  Most elements were relatively certain and straightforward.  
However, I did have around £500 of expenses that I was unsure as to whether they were permissible.  I provided the details of the expenses incurred.  Provided extracts from contracts that related and provided screenshots of HMRC guidance that I interpreted as meaning the expenses were permissible.  I then asked my Accountant to review and advise his opinion whether these are allowable or disallowed.  The Accountant considered these were allowable and submitted in the return accordingly.  If the Accountant gave a reason why these were not allowable, then I'd have paid a bit (£100) more tax.

So, to that extent, if I receive an investigation from HMRC, while the tax would still fall to me, I think I would have a defence of reasonable due diligence and hopefully HMRC would consider that in any penalties that may be assessed.
I guess, ultimately, if penalties were high, I'd consider the merit of pursuing recovery against the Accountant's PI cover.

I assume that HMRC cannot impose penalties on the Accountant directly in such a case.

If reasonable due diligence can never be a factor or support a defence, then there hardly seems any point in having Accountants trained to know this stuff.

I think, if I had a case like the OP where expenses were £39k versus a salary of £24k, I'd find value in an independent review of the expenses as valid prior to submitting to HMRC.  Partly for spotting simple and genuine mathematic error and partly because if the advice was that some part, say £2k, of what I though of as expenses was in fact not allowable, it would be better to know and simply suffer the tax arising than not know and risk suffering the stress and hassle and time burden of an investigation.


I am going to add to all of that.  If an individual gives an Accountant a set of obviously incomplete data and / or data which is not verified by simple evidence (for example salary data but no P60), then the Accountant should simply refuse to process the information and walk away.

mybestattempt

Grumpy_chap said:

mybestattempt said:

While I understand your thinking here, HMRC might not accept a taxpayer took "reasonable care" by simply engaging an agent:

https://www.gov.uk/hmrc-internal-manuals/compliance-handbook/ch84540

I agree.

Obviously, the onus is on me to provide full information to my Accountant.  The Accountant can only then assist the assessment.

In my particular case when preparing my tax return this year (for 2023-24), I provided a spreadsheet with all the data and back-up evidence for the big ticket items.  Most elements were relatively certain and straightforward.  
However, I did have around £500 of expenses that I was unsure as to whether they were permissible.  I provided the details of the expenses incurred.  Provided extracts from contracts that related and provided screenshots of HMRC guidance that I interpreted as meaning the expenses were permissible.  I then asked my Accountant to review and advise his opinion whether these are allowable or disallowed.  The Accountant considered these were allowable and submitted in the return accordingly.  If the Accountant gave a reason why these were not allowable, then I'd have paid a bit (£100) more tax.

So, to that extent, if I receive an investigation from HMRC, while the tax would still fall to me, I think I would have a defence of reasonable due diligence and hopefully HMRC would consider that in any penalties that may be assessed.
I guess, ultimately, if penalties were high, I'd consider the merit of pursuing recovery against the Accountant's PI cover.

I assume that HMRC cannot impose penalties on the Accountant directly in such a case.

If reasonable due diligence can never be a factor or support a defence, then there hardly seems any point in having Accountants trained to know this stuff.

I think, if I had a case like the OP where expenses were £39k versus a salary of £24k, I'd find value in an independent review of the expenses as valid prior to submitting to HMRC.  Partly for spotting simple and genuine mathematic error and partly because if the advice was that some part, say £2k, of what I though of as expenses was in fact not allowable, it would be better to know and simply suffer the tax arising than not know and risk suffering the stress and hassle and time burden of an investigation.


I am going to add to all of that.  If an individual gives an Accountant a set of obviously incomplete data and / or data which is not verified by simple evidence (for example salary data but no P60), then the Accountant should simply refuse to process the information and walk away.

You are, in my opinion, the very definition of a person taking reasonable care to ensure your tax return is correct and I would expect HMRC to take the same view.


As you suggest, there are many who fail to keep proper records. However, they may engage incompetent agents who in turn are prepared to cobble together figures which if scrutinised result in incorrect returns. HMRC would be unlikely to accept a taxpayer's contention that he/she took reasonable care in those circumstances.