Let your conscience be your guide ! Voluntary Disclosures prior to any intervention by HMRC

In the past few months two cases have come my way from clients viewing my website probably late on an evening when their consciences began pricking them.

In both cases they had submitted tax returns for years but were having sleepless nights about the fact that they had over claimed on their expenses.

HMRC had never raised an enquiry into these cases following receipt of their annual tax returns. Both were sole traders.

Looking at the cases, at first sight there seem to be no risk jumping out that would have led to an enquiry by HMRC, however both clients insisted on me re-visiting their accounts over many years and putting them right.

In both cases I was able to do it by a voluntary disclosure online using HMRC’s system as shown on their website.

Besides this I drafted a detailed report on the circumstances and attached a number documents and computations to show HMRC what had been amended on each tax return.

Both cases were accepted without any question being raised by HMRC and the money was taken by HMRC gratefully in accordance with my online disclosure. Penalty charges were extremely low due to this entirely voluntary disclosure which using my experience as a tax inspector I believe would never have been picked up by HMRC.

Both clients felt hugely relieved by having set the record straight, but most people would have let sleeping dogs lie and been grateful that they had never fallen foul of the Revenue up-to-date. Here are the details:-

A lady tutoring children for entrance exams, GCSEs and A-levels had done the job for many years alongside her normal PAYE job as a teacher.

There were eventually a few cash payments from parents that she had not declared but she had already declared 95% of her income as it was banked each month.

What she had done was overclaim on her travelling expenses greatly, by overstating the mileage from home to the students houses and also claiming a large amount of travelling expenses for her PAYE income which is not allowable as it was deemed to be ordinary commuting by an employee. The latter was denied in my computations and AA auto route used to re-calculate the proper mileage on her self-employed record. Some other expenses of a personal nature for example ordinary clothing she had claimed for wearing in her position as a self-employed tutor was also not allowable and the whole accounts for the last six years where re-worked.

This resulted in around £4000 tax being payable, but again very low penalty charge was involved.

As we had brought the errors to HMRC’s attention we had to be extremely careful not to over-claim again in the amended disclosure. Therefore a great deal of her travelling expenses were disallowed as she did not have sufficient records to prove them.We were able to use the addresses of the students that she had retained records for, but at the end of the day she was punished possibly unduly by not claiming enough in the whole of the amended disclosure.

You have to be careful what you wish for as you are signing off in a voluntary disclosure that everything disclosed is to the best of your knowledge and that false statements can result in prosecution. Therefore we could only claim for things that we could prove by either diaries or receipts.

Likewise the tattoo artist working from an office at his home had over-claimed greatly on the amount he could claim for working from home. He had been alerted to the rules during Covid and as usual ‘Googled’ it which had sent him into a spin.
Dare I say that he was a marvellous artist but I painted the wrong picture to HMRC!

A lot of his expenses were over claimed and some income had been omitted.

Lots of his work was in glorious colour but the allowability of his claims were very black and white! and once this was brought to his attention voluntary disclosure was made. This put his mind at rest he moved into a separate unit and his business has flourished as you can see from the rise in tattoos seen everywhere and he is inundated with work