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Post Info TOPIC: Sole trader tax return


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Sole trader tax return

I agreed to do a tax return for a uncle's friend who does some general building works ( sole trader ). I dont work in practice, i work in industry but just wanted to help him do the return just to get an experience - as i am thinking maybe i can do a little side business in the future- doing simple tax returns for friends and relatives.

His tax return was done by his local firm last year- and my plan was to look at last year's return to get some insight on his business/expenses and do it for him. But looking at his last year's return- even though it was done by a person working for a firm- does not look convincing.

His revenue was aroung 54k and expenses around 50k giving only 4k profit!. Prev tax year he also had a job which took up his personal allowance. so he paid tax on his profit. But this time he only has worked as self employed. His income is very similar around 55k and expenses around 50k, which means there is no tax to pay!

I thought doing sole trader return would not be problem but seems not very likely. He says he does not deposit cash payments into his work account, uses it to pay bills or deposit to some one else's account- i am not sure. He says his expenses in his bank account which he uses are all genuine except few.

So on my analysis, his profit are understated because of him not including cash payments. I could either look into his expenses receipts and try to reduce them by leaving out some expenses? So that he has some profit taxable so he does not get into trouble? I have suggested him he need to put the cash income into his work account, but i can do nothing about the past. So not sure how do i sort this. Even if i do this, his profit will not match with previous year where he has similar revenue.

Last year was his first time doing sole trader return. Looking at his last year's return- who ever did the return did not do it properly even if it was done via a firm? which makes me question the integrity of the one who did it. Or i could be judging them wrong?

I do not want him to be in future be in tax man's enquiries so would like to offer him best advise on what he needs to do? Experienced ones can you suggest me how to go about this?

I am thinking most of the readers will suggest ask him to go to the firm, but this thing just got me more curoius and i want to know how to solve these kind of problems for my learning experience. Any brief suggestion would be appreciated. I think most sole traders want to pay less tax and hide incomes- and even local accountants in firms seem to encourage them( by not correcting thier mistakes )- judging by his previous tax return

Even if i suggest him to go to a firm- i want to be able to advise him on how to overcome not being penalised by hmrc jugding by his previous return. Only way he pays some tax is if i reduce his expenses. or he pays no tac this year, and when he starts inlcuding his cash income correctly into his work bank account this year- he should be able to pay tax next year when all his incomes show properly. That way his profit from last return would not look way off comparing to the revenue? Or reduce his expense this return- but then his expenses will be too low this return compare to last time and will again be high the following tax return. Very confused-

I am sure hmrc will be linient on first time returns?



Status: Offline
Posts: 1202

Without meaning to sound rude, i do not think you have the experience to advise him on what to do, probably best to keep well away from this one and no do not expect HMRC to be lenient just because it is the first returns.



These are only my opinions of how I see things and therefore should not be taken as advice

Master Book-keeper

Status: Offline
Posts: 3736

I agree with Doug, you need to stay well clear of this one. Certainly don't reduce his expenses, that is being complicent with the tax evasion, as you are attempting to cover up what he's not declared.



Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.

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