I have just joined this forum, and I have a book-keeping question I hope someone can help me with. I am just starting out with my own BK business and have been approached by a potential client.
This client has been self employed for about 3 years but hasn't registered with the tax office. He also has absolutely NO records and was always paid in cash! He didn't have a bank account so any expenses were paid out of his ex's account.
Now he wants a mortgage and needs to prove his income for the past 2 years! He hasn't been claiming any benefits (thankfully!) but needs help to get out of this hole and get on the straight and narrow!
HELP!! Anyone got any advise as to what I should do/advise him? Thanks
Personally, I wouldn't touch them with a barge pole.
However, if you are really set on taking this client on, the very first thing they need to do is speak to HMRC. Without receipts they are really at the mercy of HMRC who will most likely impose fines and compare them to a slightly bigger business in the same line of work for tax purposes.
I still don't think any of this will help him prove his income, as from what you say I doubt he knows what it was.
My advice, steer clear. It's really just not worth the bother.
The views expressed in this post are my own personal (HRA protected) views, and are not representative of any organisation I have any involvement with.
I just showed my husband this post as he is a mortgage advisor and he said that the likely hood of getting a mortgage with no actual proof of income is minimal unless he can provide you with at leaset 12 month trading history so you can forecast the next 12 months.
He also mentioned that if there was a 12 month projection he could obtain a mortgage, however the interest rate would be high and the affordability would need to be accessed.
Actually I believe HMRC are taking a more lenient approach to such situations providing the offending party comes forward off his own accord and is not caught out by HMRC.
Once instructed by the client, the standard practice is to write to HMRC to explain the situation. In the letter, you should explain that you are working on his accounts and give a date in the not too distant future when the returns will be complete.
However, given that his transactions were all in cash and there is no bank account that is easier said than done. As Kris has already said, HMRC are likely to compare his business to a larger one to work out the tax.
The trouble is, now you know that he hasn't submitted a tax return for 3 years then I think that, as a professional bookkeeper, you are obliged to report this to HMRC.
Thank you everyone for your advise. I spoke to him earlier in the week and advised him to talk to the tax office, or even go in personally to the local office and tell them everything.
He agreed that he needed to explain everything to them and ask for their help and he will keep me posted.
Typical I am just starting out and I get one like this!!!
