Reply to: Why pay Tax?

[Darren@UptonAccountants]

Accounts

Darren

How do you validate what you are being told by the contractors when preparing year end accounts. I know Accountants put in a disclaimer that the reports are prepared from information provided to them, but with no audit requirement the scope for 'creative accounting' would appear to be in place!!

I presume if the Revenue see the company trading in industry wide levels of income and profitability then they would be satisfied that all was well - especially if a company used a reputable accountant.

The accounts prep process for a contractor can be quite similar to carrying out an audit mainly because of the level of transactions involved...main difference is that we don't have to complete reams of audit programme paperwork.

As income tends to be remitted from agencies direct to the bank account, this is easy to vouch....it's the expenses that come under most scrutiny which is why it's a good idea to retain all receipts together with recording as accurately as possible...this is the area where "creative accounting" is likely to take place.

And you're correct, if the accountant has a good relationship with the IR and is known to provide accurate figures, then it should go in the clients favour on enquiry.

[maximus]

Darren

How do you validate what you are being told by the contractors when preparing year end accounts. I know Accountants put in a disclaimer that the reports are prepared from information provided to them, but with no audit requirement the scope for 'creative accounting' would appear to be in place!!

I presume if the Revenue see the company trading in industry wide levels of income and profitability then they would be satisfied that all was well - especially if a company used a reputable accountant.

[meridian]

In other words nobody is perfect, just dont take the piss. An eminently sensible approach IMHO.

When I worked for the Revenue our estimate was that 5% of people would scrupulously pay every penny owed, 90% would make a good attempt to be honest but would try to get away with what they could, and 5% would take the piss as far as possible.

In an ideal world HMRC would go for the 5% taking the piss, and there will be inspectors doing that, but the reality is that most bread-and-butter investigations focus on clients and areas of the accounts that are easy money for a quick turnaround.

Unfortunately, taxpayers that are commonly thought to require closer examination (the wealthy and corporations) are also those that are more likely to hire decent lawyers and tax accountants that will draw out the investigation.

[DaveB]

The general consensus from a number of inspectors is that they expect people to keep back a few quid in cash but they get really annoyed when people take too much!

In other words nobody is perfect, just dont take the piss. An eminently sensible approach IMHO.

[Darren@UptonAccountants]

Tax free

Here's a question: if you did what I'm sure a lot of sole traders do and get paid a significant amount of your income in cash and not tell the tax man, and not put it into any bank account, how much would you be able to use it without attracting suspiscion? Sure you could get through a couple of hundred every month in the pub or whatever, but if you had a couple of thousand you'd probably struggle. You couldn't for example keep paying your mortgage in cash without the risk of being found out. Or could you?

People do & get away with it....the problem comes on enquiry. Dealt with a case a number of years ago when the client turned up to an enquiry meeting in a Posche and designer gear despite only declaring very low profits that clearly did not support this lifestyle...not very clever!

Had another where the client would have got away with it and was extremely clever in loosing a lot of cash....was only found out as the inspector lived in a nearby street and had "heard" that there was an undisclosed villa in Spain, which turned out to be paid for using undisclosed cash from his 2 pubs!

Not a good idea to hold back large sums of cash! There are of course moneylaundering regulations that prevent large cash deposits going into the banks without a few eyebrows and questions being raised.

The general consensus from a number of inspectors is that they expect people to keep back a few quid in cash but they get really annoyed when people take too much!

[VectraMan]

Here's a question: if you did what I'm sure a lot of sole traders do and get paid a significant amount of your income in cash and not tell the tax man, and not put it into any bank account, how much would you be able to use it without attracting suspiscion? Sure you could get through a couple of hundred every month in the pub or whatever, but if you had a couple of thousand you'd probably struggle. You couldn't for example keep paying your mortgage in cash without the risk of being found out. Or could you?

[meridian]

Would there be a list of such countries, that you know of?

A list of the countries that the UK does have agreements with starts here:

http://www.hmrc.gov.uk/international/treaties2.htm

(click on "next" at the bottom to go through the list)

[jason986]

UAE - Dubai

[eternalnomad]

Would there be a list of such countries, that you know of?

BancoBerlusconi

(Allegedly)

[Dundeegeorge]

tax treaty agreement

Would there be a list of such countries, that you know of?

[Darren@UptonAccountants]

Enquiry

Presumably they need some sort of court order to look at your bank accounts as that's confidential?

These tend to be one of the first items they require when conducting an enquiry. They can also mailshot all UK banks requesting details of any accounts held in your name....this covers all onshore AND offshore accounts....they have the power!!

If you don't supply these straight away, they will suspect something is up, get an order and go even further in depth!

If they suspect there's accounts in other countries, they can also request details from countries which hold a tax treaty agreement. There are still countries where these don't exist but these are decreasing very quickly.

[VectraMan]

Isn't it all down to whether they choose to investigate you or not?

What automated system are there that would flag to them that you are not declaring something?

If I received £30,000 from someone, how are the IR going to know about it unless they deliberately look?

Presumably they need some sort of court order to look at your bank accounts as that's confidential? Which means they must have some reasonable suspiscion that you're doing something wrong before they can find out. But will the banks flag large deposits in some way? They obviously do with cash deposits.

[OrangeHopper]

Isn't it all down to whether they choose to investigate you or not?

What automated system are there that would flag to them that you are not declaring something?

If I received £30,000 from someone, how are the IR going to know about it unless they deliberately look?

[VectraMan]

You could accept a lower rate and then ask the client to pay you extra in brown envelopes filled with cash - hypothetically of course.

[tim123]

Is there any reconciliation between what I invoice the agency and what I declare as income?

As a Limited Company contractor then yes, the IR can see where all of you billings end up.

But as a self employed individual you can get away with tricks to hide some of your income by pretending that it isn't a payment for services (using the not being found out rule).

tim