Check of Self-Assesment Tax Return

mira2602
mira2602 Registered Posts: 29 ? ? ?
Morning Everyone,

friend of mine received a letter from HMRC with regards the check of his Self -Assesment Tax Return. The reason for them to check it, is that the information they received from contractors who made payments under CIS does not match what my friend provided them with.

To keep it short, one of his contractors folded the company, did not pay him for the work outstandidng but in march 2011, according to HMRC statement, he submitted that he made payment to friend of mine in the sum of £10,000 and tax deducted £2,000.

Now, as my friend never received £10,000, he never included this amount into his income.

Did you ever had a client with similar problem?
What should he do in this case?

Any advise would be greatly apprecated.

many thanks in advance.

Comments

  • jamesm96
    jamesm96 Registered Posts: 523
    Was he due to be paid the £10,000? Or is that a totally fictional amount?

    In any case, he's not received the money and, presumably, expected that he wouldn't when preparing the accounts in which case it's a bad debt and it's appropriate to adjust for it in his accounts (which is confirmed by having not received it 14 months later either).

    Write back to the inspector and say exactly that - the £10,000 was a bad debt which has not been recovered. I can't see the inspector having any problem with that; if he checks their records he'll probably see that they never received their £2k either.
  • groundy
    groundy Registered Posts: 495
    I wouldnt say it was a bad debt as the contractor has declared it as paid. I would say it is fraudelent by the director of the contractor. Chances are that the contractor was winding up the company and realised there was an overdrawn directors loan or a large cash balance. Therefore they fabricated payments to subcontractors to remove the cash/overdrawn loan position, knowing that the CIS would not be paid as company being wound up.

    Unfortunately I know a few contrators that fabricate payments to subbies to hide the level of their own income. Not only that but then they make sure the subbie gets a refund and make them give the contractor half. I have nothing to do with these contractors and have declined to do their accounts in the past but they do drink in the same pub that I used to frequent.
  • mira2602
    mira2602 Registered Posts: 29 ? ? ?
    thank you for your replies, I really appreciate your time and advise given.

    well, the debt outstanding was £2,000 so I guess contractor made the payment of £10,000 to get the friend of mine a tax refund of £2,000-which is fraud I would say from the contractor.

    What are the next steps in such a case? Friend of mine prepared his accounts himself, as he did his tax return, to best of his knowledge. ( had bad experience with his accountant in the past).

    What would happend to contractor if he folded the company?

    Many thanks
  • groundy
    groundy Registered Posts: 495
    Nothing would happen to the company as it no longer exists. If your friend did not receive the £10k and it wasn't included on their tax return, then they should write to HMRC to explain they never received the money.
  • jamesm96
    jamesm96 Registered Posts: 523
    groundy wrote: »
    Nothing would happen to the company as it no longer exists. If your friend did not receive the £10k and it wasn't included on their tax return, then they should write to HMRC to explain they never received the money.

    Yep, I quite agree.

    As HMRC checks go, I'd say this is probably one of the easiest questions you'll ever need to answer!
  • mira2602
    mira2602 Registered Posts: 29 ? ? ?
    Thank you for your replies guys,

    so you want to tell me, if I fold up a company for example, thats it? no responsibilities, no penalties?
    So all dodgy firectors can get away with mess they create for others?

    Is there any time limit they have to keep paperwork, once company is closed?
  • Monsoon
    Monsoon FMAAT, AAT Licensed Accountant Posts: 4,071 ? ? ?
    mira2602 wrote: »
    Thank you for your replies guys,

    so you want to tell me, if I fold up a company for example, thats it? no responsibilities, no penalties?
    So all dodgy firectors can get away with mess they create for others?

    Is there any time limit they have to keep paperwork, once company is closed?

    In practice, yes, dodgy directors can get away with a lot. Not always, but often.
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