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“A further installment of questions I’ve been asked and my replies, which will hopefully be of some interest to you.

If you have a question you would like me to answer please email me directly

 

Question: Undeclared income

I am worried because I have not declared some of my income to HMRC. I started my web-design business 2 years ago as a bit of a hobby, just for family and friends, but with recommendations it’s grown into a reasonable business. To avoid problems, should I just close it down and keep quiet? But if I tell the taxman, what will he do?

Answer: My advice is to “fess-up”. HMRC actively search for non-registered businesses and obtain their information from a variety of sources: on-line search, door to door enquiries, free papers, reports from members of the public or from relatives, information from other government departments, investigations into other businesses, among others. Your situation is potentially serious, but you will benefit from disclosing the position to HMRC as soon as possible because it will avoid any prosecution and they are likely to reduce any penalties payable.

Also, as you’ve only been in business for two years, it’s likely that little or no tax will be due for the first year and you might just get away with a single £100 fine for late notification, but its best to get urgent professional advice.

Question: Director’s Loan Account

I am one of two Directors of a small limited company. We both put money into the company to cover some initial costs (about £1,000 each). One shareholder/Director is now longer interested in taking the business forward. As there is no money in the business he is willing to write off his loan to the company and give up his share. How is the best way to achieve this so that there is no come back when the business starts making money and will there be any tax implications?

Answer: I would pay the outgoing Director £1 for his share and get him to gift his right to receive £1,000 from the company. The only entry that will be required in the company’s books is to merge two loans into one. There are no tax implications.

Question: Can I reduce my tax bill by adding my wife to the title deeds

I bought a flat in 2000, lived in it for 2 years then rented it. It’s now in the process of being sold and after allowing for the 2 years I lived there, plus the last 3 years, lettings relief of £40k & my annual CGT allowance of £10.9k I think my Capital Gains Tax bill is likely to be around £15k. If I transferred a 50% share of the property to my wife now, would we be able to add her £40k lettings relief & annual CGT allowance to wipe out the tax bill. We were not married when I bought the flat, though she did live there for 3 weeks in Jan 2002, we were not married then either. I want to do the right thing but am slightly concerned that this might be construed as tax evasion by HMRC!

Answer: I’m sorry but you won’t be able to eliminate your tax liability completely, as your wife did not live there as an owner. You could transfer a small percentage to allow her to mop up her CGT allowance, but that is all.

Question: Can I do my accounts on a cash accounting basis

I’m a self-employed taxi driver and all of my income and most of my expenses are paid in cash. I don’t have any bookkeeping knowledge and it would be easier for me if I could simply record things based on when the cash came in or went out. Is this allowed by the tax people?

Answer: Yes, small enterprises with an annual income under the VAT threshold of £79,000 can take advantage of the cash basis of accounting for money that is transferred in and out of the business

Question: Reasonable excuse for late filing of tax return

Following a promotion 18 months ago I became a higher rate tax payer for the first time and began receiving some car benefits and was told that I now had to complete a tax return. I must admit, I left it to the last minute and attempted to file on line on 21st January using HMRC’s free software. Their website informed me that I could not file the return until I received an activation code in the post. This did not arrive until last week and I filed the return, but I’ve been fined £100 for being late; can I appeal?

Answer: Yes, you can appeal and it’s likely to be successful. HMRC have stated that they will accept as a reasonable excuse the fact that you registered for on-line filing before the deadline of 31st January, but failed to receive the activation code in the post by that date. The only proviso is that you file as soon as possible afterwards, which you’ve clearly done