But the local tax office said...

Quite often we meet people who have been doing their own accounts and tax returns and have finally decided the job is too big for them. We've written before about the problems posed by the do-it-yourself tax return approach, but this week we met someone with another twist to the tale.

A couple were running a guest house in sunny North Devon. Various issues with their previous submissions came up as we talked.

One was especially interesting.

The problem

"I record each guest breakfast as costing £10. I don't keep track of what they actually cost. I don't have to."

"Why not?"

"Keeping all those receipts seemed a lot of work, so I spoke to someone at the Barnstaple tax office. He asked me how much I thought the breakfasts cost. I said 'ten pounds' and he said 'put that down then'. It must be okay. The tax man said so."

It's tempting to accept this reasoning. Tempting, but wrong.

Why it's a problem

There are lots of Tax Tribunal cases where people have followed the advice offered by someone from their local tax office, only to find that when HMRC enquired into their tax return that they did not agree with the advice that had been offered. Take the case of Louise Stones.

It's easy to see that in an example like this, HMRC would not simply accept a round sum of £10 per person for breakfast. It's hard to see how such a charge could be justified.

The worst case scenario

So what would happen if HMRC successfully challenged this figure?

As well as having to pay the tax due (plus interest), the tax payer could end up with penalties of up to 70% of the tax at stake.

The level of penalty charged would depend on how negligent you thought to be and how deliberate the error was.

The solution

Keep a record of what advice you were offered and by whom. It might not stop you having to pay the extra tax if HMRC disagrees, but showing you acted on the advice of one of their officers could show the error wasn't negligent or deliberate and reduce the potential penalties to zero.

Or, use a qualified accountant. We like to offer our clients the certainty that we’ve taken all the steps we can to reduce their tax liability –  and the amount we advise them is all the tax they will now have to pay.

Wouldn't that be better?

Pay Less Tax - Summer 2013

It may be grey and wet outside, but you can find the Summer 2013 edition of our Pay Less Tax newsletter on our website.

This edition has lots of interesting ideas that should be relevant to your business. Some of them are ones that we’ve been discussing a lot with businesses lately, including whether a business should trade as a limited company, what’s the most tax efficient remuneration for company directors, and whether the VAT Flat Rate Scheme could help your business keep a little more from its gross income.

Other issues looked at this time include making use of your Annual Exemption for Capital Gains Tax.

Why not check it out?

The dangers of doing it yourself

Here at Accountancy Edge we often find that people who have completed their own tax return could have paid significantly less tax if they had professional advice. However, we also find people who have paid significantly less tax than was actually due.

So why is this a problem?

If HM Revenue enquires into such a tax return and finds that additional tax is due, not only does the tax become payable with interest, but penalties of up to 70% of the tax at stake can be charged.

So doing your own tax return to save a few hundred pounds could easily end up costing you far more.

That's we advise every tax payer in the self-assessment system to seek appropriate professional advice. At least then you can be happy that you've paid the right amount in tax.

Grandparents giving their children £3,000 a year for everyday expenses?

The Daily Telegraph has an article in claiming that grandparents are on average giving £3,000 a year to their children to meet their every day living expenses.

Said "everyday" living expenses include weddings, new cars and mortgages.

Undoubtedly many people do benefit from financial help from their parents or grandparents. However, the figure quoted here as the average makes me think something else is going on.

It could well be that these are well off grandparents who are reducing their estate's liability to Inheritance Tax  Everyone has an annual gift exemption worth £3,000. In other words, a gift of £3,000 per year can be made and reduce the taxable value of the estate.

Is this just a coincidence, or has the survey's author JP Morgan asked their question mainly to the more well-heeled?


Accountancy Edge are Chartered Accountants based in Bideford, North Devon. They help business owners earn more, keep more and enjoy their businesses more.

HMRC task force coming after South West businesses

HM Revenue & Customs has increasingly focused on investigations as a way of raising the tax take. To do this, they've launched a series of task forces, which each target a different trade sector somewhere in the country.

Now it's Devon and Cornwall's turn.

So what does this mean?

Well, they'll be looking at seasonal and cash based businesses to try and see whether they've been declaring all of their income to find out if there's income tax or VAT to pay.

They can know more about your business than you think. For example, the fish and chip shop that doesn't declare all of its sales could easily give itself away if its purchases seem high for its sales. After all, if you say you only sold ten meals, why would you buy ingredients for five hundred?

The important thing here is that they are not doing this at random. With the task force approach they are using targeted, intelligence-lead strategies that should minimise the impact on those with clear consciences. There are also lots of products out there that can cover the costs of dealing with an enquiry (we offer one).

Our tax system is so generous anyway that there is a lot that can be done to keep bills low with nothing more than a bit of forethought and planning - and a good accountant.

Taxing times and false economies

I often meet people who complete their own tax returns. Usually they think that they're saving themselves money.

After all, why pay someone to do something you can do yourself?

There are a few good reasons actually!

One person I know did their own tax return last year. It was their first one. Getting together all the information and filling it in online took them three days. Yes, three days.

Now imagine what else they could have done with that time. That could have been three days in which they earned more money, or even had a well deserved break.

There's more than that. Even after all that time, they still don't really know whether they got their tax return right. They don't know the latest legislation or the reliefs and allowances that are available. They may well have paid too much tax as a result.

So this person has lost time that could have been used more productively, is worried that they might have got their tax return wrong anyway, and may be actually out of pocket. And they did this to save money!

Crazy, isn't it?

That's why we think people should use firms like Accountancy Edge to take care of their tax affairs. We'll free up your time so you can spend it on your business. You will also sleep better at night knowing that your tax return has been done correctly by a professional. So why not contact us today?

Reducing the Income Tax you have to pay on 31 July

If you're in the Self Assessment tax system, then you usually pay tax on two key dates: the 31st of January and the 31st of July each year.

The next HM Revenue & Customs payment deadline is approaching, for the second payment on account for the year-ended 5 April 2013, which is due by 31st July 2013.

As payments on account are estimated based on the previous years figures, it is possible to apply to have these reduced should the tax liability have fallen.

However, in order to do this accurately you have to know what the actual liability is.

There is still time to prepare the return and accounts before the deadline for making your payment on account, and if profits have reduced then a reduction in the payment on account could bring welcome relief.

Even if the payment cannot be reduced, it does not increase – so the advantage is that people know their tax liabilities well in advance and can plan for them without worrying about an unexpected tax bill.

If you know anyone who has a payment on account due this July, but thinks it may be too high, please do put them in touch Accountancy Edge.