Case Studies

• Mistake when filling in a tax return
• Who is self employed and problems with IR35
  
• Unexpected bill follows PAYE visit
  
• VAT visits

Unexpected bill follows PAYE visit

'ABC Limited' made children's toys. The company had a manufacturing plant in China, and sold their toys all over the world. This meant that Directors and senior staff had to travel extensively. The company paid for the cost of this travel: bookings were made on the company credit card, or staff would pay for them and reclaim them on their expenses. The company employed a local firm of accountants to prepare the annual accounts and tax returns, but the company prepared the entire payroll and submitted all the returns that were required.

In their 2005 accounts, the company showed £173,827 in travelling expenses. HMRC opened an enquiry, asking for details of the travelling expenses. They wanted to know who had travelled, where they had been, and the reason for the journey. The company compiled a list of all the journeys: some of the trips were not connected to customers or suppliers, but were for conferences or training seminars; some of the travellers were not Directors or Staff -- they were wives or, in some cases, children. On discovering this, the Revenue sought to disallow the tax relief on some of the travelling expenses, and tax the individuals as well.

There are lots of potential problems here. For the expenses to be allowed as a tax deduction, they have to be wholly and exclusively for the business. They cannot be essentially private in nature, i.e. family holidays. Similarly they should all be declared to HM Revenue & Customs on the annual P11D form. On inspection, it was found that the "training courses" involved very little training, and a lot of time on the golf course!

In negotiating with HMRC, Tax Champion were able to prove that there were cultural reasons why wives were necessary on some of the trips; that the "training seminars" had already had tax paid to Revenue and Customs by the suppliers who made the arrangements. The family holidays were harder to deal with, but new internal processes were put in place to deal with this moving forward.

We advised the company how to legally avoid having to send returns of the travelling expenses in every year. Although some tax was paid, we were able to prevent the enquiry moving into other areas of the business.