need a trusted tax advisor for a HMRC compliance check, please help!
Thread poster: Julia_O_K

Julia_O_K  Identity Verified
United Kingdom
Local time: 14:40
English to Russian
+ ...
Jan 15

Hi everyone,

Yesterday I received a 'lucky' letter from HMRC telling me that I was randomly selected for a compliance check. They now want to go through my self-assessment return and scheduled a two-hour interview in their office. I read dozens of nightmare stories about these checks on the internet - HMRC is intent on finding faults even with correct documents, is often intimidating, especially in the interviews and may drag the dispute for years to get a person to pay the penalty, which they then multiply by the number of years you have worked, which can be a huge amount. I would like to tackle the issue with a tax advisor, but don't know anyone, and the firms I have found on the internet charge 245 pounds an hour, a bit exorbitant for me, a very 'small fish'. I have been doing freelance translations for 6 years in my free time, and my net profit is generally within the non-taxable allowance or exceeds it by 1-2K. In the financial year HMRC wants to check I didn't pay any tax, having earned about 6K after the deduction of expenses.

Please help!


[Відредаговано 2017-01-15 11:05 GMT]

[Відредаговано 2017-01-15 11:05 GMT]


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Tom in London
United Kingdom
Local time: 14:40
Member (2008)
Italian to English
Look locally Jan 15

I don't know where you live, but here in London there are lots of small local firms in the surrounding streets, some with shopfronts and some in upstairs rooms. I suggest you look around in your own local area, preferably in a street that looks "poor" rather than "rich".

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Agneta Pallinder  Identity Verified
United Kingdom
Local time: 14:40
Member (2014)
Swedish to English
+ ...
Agree with Tom Jan 15

Local Yellow Pages and/or walking the streets in a modest business area near you is probably the best way of finding a tax advisor. You might also be able to get a preliminary consultation for free, at least to establish if there is a lot of work for them to do on your self-assessment.

At the risk of sounding nosey - I assume you have income other than your small income from part time freelance translation, and in that case every such income has to be included in your self-assessment declaration, even if it is from a source that deducts PAYE, or from a foreign source.

I live in the North of England and when I first went freelance and completed my first financial year in 1993, I had the good fortune to find a friendly and honest tax advisor who thought it was fun to teach me how to turn my bookkeeping into proper end of year accounts, balance sheet and all. He still does the annual self assessment declaration for me and my husband, for my freelance business, and for my husband's small manufacturing business, and over the years he has saved us both money and hassle while making sure we stay strictly within the law.


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Tom in London
United Kingdom
Local time: 14:40
Member (2008)
Italian to English
Thanks Jan 15

Thanks for letting us know, Julia.

About a year ago HMRC was given special extra funding by the Conservative government to target "tax evasion" not by Google or Apple, who seem able to get away with it, but small businesses like restaurants, taxicabs, **translators** etc. So I suppose all of us translators should always be aware that an inspection may come at any time.

The keyword is "evasion". Everyone can make mistakes and I'm sure there are mistakes in my book-keeping/tax returns, but I don't seek to evade or avoid tax. I think the inspectors are mainly looking for evasion, rather than just poor bookkeeping or genuine mistakes (although as I found out myself a couple of years ago, even a small mistake on your tax return will cost you a fine).

Good luck with finding a local accountant - there are lots of them, so you should shop around and try a few before you make a decision.



[Edited at 2017-01-15 15:40 GMT]


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Chris S  Identity Verified
United Kingdom
Member (2011)
Swedish to English
+ ...
Why? Jan 15

Isn't it a bit late to get advice?

The tax man isn't as unreasonable as people make out. If you've been honest you have nothing to fear.


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Julia_O_K  Identity Verified
United Kingdom
Local time: 14:40
English to Russian
+ ...
TOPIC STARTER
Thanks Jan 15

Tom and Agneta, thank you for your advice. Agneta, I live in Leeds, so I would be very happy if you could put me in touch with your reliable tax advisor. I am writing a PhD, which I will hopefully submit this year, which is why I only do translations part-time, with my husband the main bread-winner. In the year in question I did some teaching as well, which I declared in my return. I have completed SA by myself and paid all taxes over the years, and I am most concerned about possible mistakes leading to fines, scaled back to include all self-employed years.

Tom, can you mention what kind of mistakes they spotted in your SA return? A related question: if you work from a rented home, how much is it possible to claim in expenses? I claimed one third, because we rent a three-roomed apartment, with one room used as my home office (although it also has a guest sofa bed, never used). I now start to doubt if this would be acceptable to the taxman.

I did get a free consultation over the phone, which I think I'll follow: to suspend the interview and ask the inspector to put his concerns in writing, so we could discuss these with a tax advisor.


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Tom in London
United Kingdom
Local time: 14:40
Member (2008)
Italian to English
errors Jan 15

Julia_O_K wrote:

....
Tom, can you mention what kind of mistakes they spotted in your SA return? A related question: if you work from a rented home, how much is it possible to claim in expenses? I claimed one third, because we rent a three-roomed apartment, with one room used as my home office (although it also has a guest sofa bed, never used). I now start to doubt if this would be acceptable to the taxman....


.


The error was really small; a tiny error in adding up a total in one section of my paper SA return when I was still doing it by hand- Luckily the online system adds things up correctly. I think the fine was £10 or something. Actually it was useful because it reminded me that the tax inspector has a beady eye, and will not overlook any mistakes. So I'm even more careful now about getting everything right to the best of my ability.

And yes, I work from a rented home. The floor area of the space I use as an office is about 10% of the floor area, so I record 10% of the rent as a deductible expense.

This is all based on advice from my accountant (who I do not see regularly and only occasionally consult), telephone calls to HMRC, and the Help Notes that come along with the Tax Return as well as on the occasional tips you can pick up from accountancy websites.

In all of my dealings with HMRC they have always used the word "reasonable" in relation to the percentages of things I deduct. Generally speaking my business-related expenses and capital equipment allowances are very small. I suppose the biggest thing would be computer equipment and accessories such as external hard drives etc. but I don't often make those purchases. I only deduct 50% of those expenses because of course I use my computer for other things besides work. I note all of this on the receipts, which I file monthly. For example, I recently bought an SSD (50% of the cost of which was a business expense) for a MacMini and then realised that installing it would be rather tricky, so I took it to a local Mac expert. I deducted 50% of his fee as a business expense. I think I would be able to say to the Inspector that I make reasonable efforts to declare the correct expenses.

In recent years, with the increase in the number of people who work from home, I think HMRC generally takes a broad approach as to how each individual makes a judgment about their personal workspace and expenses, proportions of utilities bills etc. That is the impression I have been given in my dealings with them.

As Chris points out, the great virtue of the British system is the assumption that you are not being dishonest (which is the diametrical opposite of the system in Italy, where I was based for more than 20 years. In Italy the State assumes you are lying and trying to conceal something dishonest. This makes the system quite nightmarish and was the main reason why I moved back to the UK).

A note about having an accountant: whilst it is really useful to have an accountant who knows you, I find that it's better to do my own monthly book-keeping and complete my own online SA return, because that way I personally know and understand what I have been doing, in detail. In case of doubt my local friendly accountant is always available by email or phone, or I can pop over to see him. He has what he calls "The Bible" (the UK Tax Code)- an immensely thick tome that I think nobody really understands, and which I think appeals to him as a Talmudic scholar....

[Edited at 2017-01-15 17:39 GMT]

[Edited at 2017-01-15 19:38 GMT]


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John Simpson  Identity Verified
United Kingdom
Local time: 14:40
Member (2004)
French to English
+ ...
Deductible expense Jan 16

Tom in London wrote:
And yes, I work from a rented home. The floor area of the space I use as an office is about 10% of the floor area, so I record 10% of the rent as a deductible expense.
.


Tom,
I do not wish to delve into your tax affairs but I was just wondering whether the 'method of dividing your costs' mentioned on the HMRC website (see below) could be more beneficial.

FYI: https://www.gov.uk/expenses-if-youre-self-employed/overview

'If you work from home
You may be able to claim a proportion of your costs for things like:
heating
electricity
Council Tax
mortgage interest or rent
internet and telephone use
You’ll need to find a reasonable method of dividing your costs, eg by the number of rooms you use for business or the amount of time you spend working from home.
Example
You have 4 rooms in your home, one of which you use only as an office.
Your electricity bill for the year is £400. Assuming all the rooms in your home use equal amounts of electricity, you can claim £100 as allowable expenses (£400 divided by 4).
If you worked only one day a week from home, you could claim £14.29 as allowable expenses (£100 divided by 7).


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Tom in London
United Kingdom
Local time: 14:40
Member (2008)
Italian to English
Yes... Jan 16

Yes, that's one of the things I use. Note the words "reasonable method".

[Edited at 2017-01-16 16:06 GMT]


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Julia_O_K  Identity Verified
United Kingdom
Local time: 14:40
English to Russian
+ ...
TOPIC STARTER
Thanks Jan 17

Thanks Tom and John. The link is very useful, I'll have a look, especially at the simplified expenses calculator, which they have added recently. I contacted a tax advisor and he thinks that this is indeed a random check, so I should gather all documents and come to the interview. We'll see how it goes.

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Thomas Pfann  Identity Verified
United Kingdom
Local time: 14:40
Member (2006)
English to German
+ ...
Help and support sessions from HMRC Jan 17

By the way: At the moment (every day until the end of the month) HMRC are offering free online help and support sessions (webinars) with expert staff to answer your Self Assessment questions. These could be quite useful for everyone who is doing their self-assessment at the moment.

More info here: https://www.gov.uk/government/news/webinars-and-videos-about-self-assessment

I have joined one or two of the free HMRC webinars on specific topics in the past and found them very helpful.


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