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Lack of paperwork loses £40,000 business tax claim

21 July 2015

Lack of paperwork loses £40,000 business tax claim
Keeping good financial records is becoming more important for businesses as the tax man cracks down on suspected tax dodgers.

HM Revenue & Customs (HMRC) has won £750 million extra funding from the government to tackle tax avoidance and is highlighting business expenses as one area of risk.

In a string of cases, HMRC has won appeals disallowing thousands of pounds of business expenses because the taxpayers failed to keep adequate financial records.

In the latest case, quantity surveyor and business consultant Gerald Bianchi had nearly £40,000 of expenses struck out of his self-assessment tax return because he had no significant paperwork to show how the money was spent.

Bianchi provided HMRC with eight handwritten invoices to support the transactions.

Before the First Tier Tribunal, Bianchi claimed the money was split as £32,050 cost of sales and £7,096 of miscellaneous business expenses for travel, advertising and promotion and legal costs relating to two companies he ran from his home.

He told the tribunal he could not provide the paperwork because he was away travelling at the time the money was spent and could not track the documents from overseas.

Bianchi also argued that the figures were included in his company accounts, so should be accepted as accurate.

The tribunal ruled Bianchi was obliged by law to keep financial records relating to his tax returns for at least six years after the submission of the return which was based on the figures and that inclusion in the accounts was an irrelevant argument.

The First Tier Tribunal also explained the ‘wholly and exclusively’ rule applied to his case.

The rule says that any expense must be shown to be 100% for business or must have a measurable amount that was related to a business spending.

The tribunal declared that he had no evidence to show the expenses were wholly and exclusively related to his business.