Tax return - incomplete records

paulb

I have recently taken on a new taxi driver client with a year-end of 3 September 2006. During that accounting year, this client went through an acrimonious divorce and had to leave the marital home. As a result of this, he 'lost' some of his accounting records for the period. I have the information for the period 17 Jan - 3 Sept 06, but nothing for the period 4 Sep 05 - 16 Jan 06. I am not preparing actual accounts for the year, but still need to complete the 2007 tax return as accurately as possible. There is no way I will ever get any further information from the client for the 'missing' period.

My question is basically do I notify HMR&C of the above or would it be best to try to pro-rata the information that I have over the whole year and estimate the figures? Obviously HMR&C are always wary of taxi drivers anyway due to the cash nature of the business, so I fear that the client may end up being inspected whatever happens.

Any thoughts/comments would be appreciated!

peugeot

We had the same scenario about six years ago with a burger guy!! Believe it or not, the client at the time was involved in a "burger war" and his van ended up going up in flames and so did the paperwork!

We estimated the income based on margins and prior year's accounts as this was the only way.

Best regards
Steve

paulb

Thanks Steve.

Did you include a covering letter (or similar) when you submitted the return and did you state that the figures were estimated? Obviously in this scenario the estimated figures would never be finalised due to the lack of supporting records.

peugeot

I'm not entirely sure to be honest. I personally didn't do the job, but I remember the tax partner having a major headache with it all.

I think you could send a letter informing the inspector or put it in the additional information box. I think, however, either way it could well trigger an enquiry. If you use best estimates, that's all the revenue will go off based on prior year's figures and their knowledge of other taxi drivers in the same area.

Kind regards
Steve

paulb

Thanks Steve. The difficulty in this instance is trying to guesstimate the income for the 4 months (approx) that I am missing, as the takings for the 8 months that I have are already higher than the takings figures for the previous two years, which were both complete years. If I was to submit the return as it stands, the figures would look comparable to the previous years. I am conscious that if i estimate the income for the missing period then it would almost certainly trigger an inspection, due to the big increase in the income from the previous two years.

peugeot

I think the best thing would be to approach the client and ask him what the level of activity was during the period that is missing. From this you should be able to estimate the income and fuel costs. If he has activity going through his bank/credit card statements then maybe ask the bank for copies of these, perhaps? Don't taxis have to have a certain number of "MOTs" a year - maybe this will give you an idea of the mileage over the period which you can then pro-rate over the period that is missing.

These are just ideas, but I think you need to get his return as accurate as possible using the crystal ball which clients think we possess!!

Good luck with it.

Kind regards
Steve

JonC

Taxi Driver

I would estimate the information based on the previous year and through discussion with client, but put a detailed explanation in the white box on the return to enable a 'Reasonably competent tax inspector' to flag it.

deanshepherd

Why flag it?

I would prepare the Tax Return on the information available to the taxpayer.

I do not believe there is any requirement to make additional disclosure in the white space. You could argue that this would protect against a discovery assessment in the future but the risk of raising a normal enquiry by doing so seems to outweigh the benefits to me.

A judgement call I guess.

paulb

Thanks for your comments Dean. From what you have said, you imply that you would just complete the tax return based on the records for the 8 months. Have I understood this correctly?

deanshepherd

Hmmm..

Not if you think I was suggesting your client just disregards 4 months worth of income!!

:001_smile:

I meant, I would follow the process discussed by Steve i.e. asking the client how much business he think he did for the period and perhaps compare to prior year to get a reasonable estimation.

What I am saying is that I would not necessarily disclose the fact that some of the figures are obtained from the client's best estimates rather than written records.

I would similarly not make a disclosure where estimates are made for use of home as office, business use proportions and other judgement calls.