Seeing as its "hypothetical question" day: what about not declaring income & VAT?

[ChimpMaster]

I mean, hypothetically speaking of course, how would anyone know if you charged a client your usual weekly amount + VAT, then they paid you into your personal bank account.

How would HMRC ever find out? Especially if you only did this for a couple of invoices, and carried on as normal for the rest of the year's income.

Totally theoretical, of course


Disclaimer: I am neither doing this nor seeking to do this. I am simply pondering on how tightly integrated our tax and economic system is. This message is not to be taken as advice or as reason to evade tax.

[BrilloPad]

Isn't it difficult cashing a cheque made out to a company into your personal account?

Assuming you had a cheque made out to you personally then the client would want an invoice from you. Which they might well question.

You may not ever get found out - but you might. And then you are in BIG trouble.

I worked with a contractor in 1987 who claimed to have paid nothing to HMRC or customs&excise and spent the whole lot in Barbados. I didn't believe him - but it might be possible.

I have wondered about the feasibility of setting up a petrol station and doing a runner with the tax. But I think you have to pay quite alot to the refinery.

[jamesbrown]

If you're asking whether it's possible to have a client collude with you to evade tax, I guess it's possible, but totally implausible. For one, what's the incentive?

[LisaContractorUmbrella]

Probably wouldn't be picked up for a while but that's definitely the sort of thing that an external auditor would be looking for

[Maslins]

HMRC (rightly) get a fair bit of grief for the fact that they often seem to come down hard on someone who makes an innocent mistake on a tax return, and should spend more time chasing those that deliberately don't tell HMRC anything...but the reality is the latter are far harder to find.

Whilst (like you) I'm not in any way encouraging it, realistically a lot of people will get away with doing exactly what you suggest.

As the world moves further from a cash economy, payments/receipts are far more easily traceable...so I'd suggest the chances of you getting caught will be higher in 10 years time than they would have been 10 years ago.

[BrilloPad]

As the world moves further from a cash economy, payments/receipts are far more easily traceable...so I'd suggest the chances of you getting caught will be higher in 10 years time than they would have been 10 years ago.

+1

And the advancement of computers makes it more difficult.

A friend of a friend was invited to an interview about his unemployment benefit. His Tesco clubcard was way over what he could afford on benefits! And IMO it was quite right he was picked up on it.

[mudskipper]

See there's me naively thinking that if the client is claiming back the VAT they've paid you, someone, somewhere would be reconciling the two.

[Wanderer]

I mean, hypothetically speaking of course, how would anyone know if you charged a client your usual weekly amount + VAT, then they paid you into your personal bank account. How would HMRC ever find out? Especially if you only did this for a couple of invoices, and carried on as normal for the rest of the year's income

How do you charge your clients? Typically, it's by sending them an invoice. If that invoice doesn't reconcile against your company bank account in your book keeping system then you would have to explain where the money went and why it wasn't properly accounted for. Alternatively, a devious person could "lose" the invoice but they are supposed to be consecutively numbered so that's not so easy to explain away. Alternatively, they could ask your client how much they paid to your company though I can't see this really happening unless major fiddling was suspected.

How would they ever find out? Probably in a routine inspection of your accounting records where they ask to see your invoices and bank statements and ask you if there was any company income which was not deposited into the company bank account.

To be honest, it would probably cost a lot more in time and stress explaining away discrepancies during an investigation than it's worth for the thrill of getting "something for nothing" by avoiding a trivial amount of tax.

[philip@wellwoodhoyle]

How would HMRC ever find out? Especially if you only did this for a couple of invoices, and carried on as normal for the rest of the year's income.

Any half decent accountant or tax inspector would be on the lookout for any gap. It's a pretty standard basic review technique that's taught on day one of analytical review.

If you invoice monthly, then 12 invoices would be expected of roughly equal amounts, except for a few weeks of holiday. If you invoice irregularly, then the reviewer will be on higher alert and will spend a little more time following through dates of working from one invoice to another to look for missed weeks. Same works in reverse for expenses etc.

I've certainly found plenty of accidental mistakes where sales invoices either havn't been raised at all, or have been raised for the wrong amount, because the client/contractor has messed up their recharging. In one case, a client missed an entire month's worth of income because he "forget" to raise an invoice - worked out about £10k - initially, he didn't believe that he'd missed it, but when we went through the invoices, he agreed and luckily the client paid up.

Accountants and tax inspectors need to have an enquiring mind and shouldn't just take the "books" at face value.

[darmstadt]

Hypothetically speaking, this is what someone I know did when they first went contracting back in the 80's. Used to create a weekly invoice to the agency (with VAT on) who used to pay them with a check. Money was paid into business bank account which was treated like a personal one. This went on for a couple of years until the taxman cottoned on...In the 80's this was how many people contracted...