Introduction »

Show me the money!

HMRC have always been sceptical about the source of monies introduced into businesses. If you cannot prove the source, HMRC may argue that the monies were ‘fiddled’ and should be taxed.

A recent case highlights the matter. The taxpayer argued that the source of £25,000 deposited in his account was a loan from a friend in New Zealand to buy a camper van and that his mother gave him £5,000 for the same purpose.

HMRC concluded by default that the amounts were undisclosed earnings as the taxpayer had been asked for evidence of the source of these deposits and had failed to provide it.

The Tribunal found that the taxpayer did not have records to support all of the figures used in the calculation of his tax liabilities in the tax year under enquiry. He admitted that he did not invoice all of the work that he did and had no proper business records to support the figures that he had given in his tax return. The Tribunal determined that, in such circumstances, HMRC were not required to accept the taxpayer’s unsupported claims in relation to the source of the deposits. The burden of proof was on the taxpayer to establish the correct amount of tax due. Without this evidence the tax was payable.

Therefore if you are making or receiving any family loans or gifts, we recommend you keep a paper trail, as this could be your only defence against an unexpected tax bill.

Introduction »