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Reasons For A Self-Assessment Enquiry 

As everyone knows the deadline for getting that all-important tax return in is the 31st January. If you failed to get it in on time, then you may come under scrutiny by HMRC. Here at Kinsella we know a thing or two about tax investigations so here are our top 10 reasons why you may receive a visit from HMRC!

  1. You Forget to List All Sources of Income

declaring sources of income - kinsellataxLet’s face it, it can become something of a race against time pulling everything together for the deadline. Give yourself time to pick through all your sources of income. It’s easy to forget those accounts which pay interest, the dividends on those shares you have stuffed away and had forgotten about.

HMRC will know if you have an account which pays interest so will be expecting to see income from that account. Do you have an offshore account which has paid some income because for sure HMRC will want to know if this is where you are hiding profits for the year? Have you made any cash sales?

  1. Claiming Expenses Which Can Not Be Claimed

Possibly one of the quickest ways to find yourself under an enquiry! If you continually post claims for expenses that are not allowable then it is likely that HMRC will come knocking! Allowable expenses do not include private purchases which have been acquired by the business. Other expenses which may come under scrutiny include:

Legal and professional expenses
Provisions and accruals
Repairs and renewals
Entertaining Clients
Pension payments
Employment expenses
Termination payments – notice
Research and development
Travelling costs to and from work

If you are at all unsure about whether any of these items are allowable then you must employ a qualified tax advisor or accountant to lead you through the process.

Expenses which can be claimed:

Travel costs – fuel, bus & train fares and fuel
Office costs – telephone and paper
Clothing expenses – uniforms
Financial costs – bank charges
Advertising and IT – site hosting and pay per click
Cost of sales – stock bought to resell
Staff costs – salaries and sub-contractors

You can check through expenses that can be claimed on their website.

  1. Forgetting to add NIC class II to the final bill

This is a relatively new requirement and easily forgotten. Remember to include Class 2 NIC on the self-assessment return if you are self-employed if you have opted to pay it. 

  1. Forgetting about offshore income

This has now become a criminal offence such was the commonality of the oversight. You must declare all offshore earnings and failure to do so could result in serious trouble for you. More

You must take care to go through the 12 HMRC points here ‘who should fill in a tax return’ very carefully. The penalties can be 100% of undeclared income so be very careful to include any foreign income you may have received.

  1. Estimating and rounding up numbers on your tax return

If you have estimated certain expenses and used rounding, then its fair to assume that HMRC will not trust the figures. There may be a suspicion that you do not keep adequate records.

There can be nasty additions to taxable profits if the taxman decides that you have estimated expenses and cannot provide receipts for them. These final figures from HMRC can be as vague as the ones you have provided so be careful. Sloppy behaviour like this can come back and bite you.

  1. Entering Yes for pages 1 to 9 on the second page of the self-assessment form but failing to fill in the supplementary pages.

This would never be an issue if you only filed online. With paper filling which over 1m people still use there is still the chance that you could make this error.

You need to send the relevant information along with your return. You can not refer to documents such as your accounts which the taxman has no access to. 

  1. Putting identical expenses in different boxes for more than one year

It is easy when you are in a rush to miscalculate or misclassify expenses and put them in the wrong boxes.
For example, a taxi driver misclassifying fuel costs and putting them in ‘cost of sales’ one year and ‘travel’ the next. These mistakes will trigger the alarm bells and a possible enquiry.

  1. Not explaining unusual variations

The forms allow white space for you to fill in any unusual variations. For example, if you are paying yourself above the minimum wage yet it is clear that your profits can’t support it, then be prepared to give a good explanation.

If the final tax figure is much less or more than you expected it to be, then check how sensible that looks. There may be an error in the figures, so look back and double check. If you are not prepared to take care doing this, then you may receive a nasty surprise.

  1. Not separating private use on the self-employment pages

Private use of items will be disallowed by HMRC. Make it clear to the taxman what proportion of the use of an item you are claiming for business and that for private use. Simply netting this off is not clear enough for the taxman and you may trigger an enquiry.

Be clear and be safe – the clearer you are about private use the less likely you will get questions about it.

  1. Making mistakes which could have been avoided by employing a professional such as a tax advisor or accountant

If you make mistakes, then you are likely to get an unwanted letter from HMRC. In order to avoid this then it is prudent to employ a professional. The penalties for getting it wrong could far outweigh the cost of proper advice.

You can use online software such as Xero or QuickBooks to make the whole process as painless as possible. This cloud-based software is perfectly safe and allows you to share your ongoing accounts with your advisor. They can subsequently file using a combination of these and your physical records.

If you do decide to go it alone then keep a checklist handy. Visit HMRC pages and make sure you do it correctly!

What to do if you get a self-assessment enquiry

If you do fall foul of any of the above 1-10 points, then you may receive an enquiry letter from HMRC. This will be in the form of Code of Practice 11. Of course, you may be unlucky and just receive a random self-assessment enquiry but the chances of this happening are quite low. Most enquiries are assessed on whether there is a significant tax at risk or suspicion of wrongdoing.

The first thing to do is not to panic! Call Kinsella Tax and we will give you no obligation advice on what to do next. We are experts in tax investigation, and we have seen it all. Speak t us before you speak to HMRC – don’t face them on your own  – call 0800 471 4546