Giving the right answers to the Taxman

The Taxman is suspicious by nature and if he's asking a question about your tax return you'll need to carefully consider your reply. You must tell the truth, but how you tell it can make the difference between him giving you the all clear and starting a full investigation. What's the right thing to say?

In trouble

During an investigation, "I won the money on the horses" is one of the favourite reasons given by tax payers having difficulty in explaining how they happen to be in possession of substantial sums of money or assets, the value of which they simply could not have acquired from the resources known to the Taxman. It's not the only excuse, but there is a great problem using it whether it's true or false. Why?

False

The Taxman will simply refuse to accept the suggestion at all without proof in the form of documentary evidence to substantiate your claim. If you provide false documentary evidence, you become immediately involved in an allegation of tax evasion, forgery, attempted theft and numerous other offences. However, the position is not much better if it happens to be true!

True

Obvious wins. You will be able to obtain proof from the betting shop or other organisation that you had the large win with, and so you may feel that this is conclusive. Indeed, the Taxman will not dispute the fact that you had a large win because Ladbrokes or William Hill or whoever will certainly not say you had such a win unless it was true.

Hidden losses. However, this only proves that you had a win. What it doesn't prove is how many bets you had previously placed which did not win i.e. the amount of your losses. It defies reason to suggest that your one big win came from an isolated bet - it is far more likely that you regularly bet on horses and like all punters you regularly lose reasonable amounts of money. Indeed the Taxman may go on to suggest that your win probably recouped your earlier loses - and possibly not even that.

Square one. Accordingly, you are no further forward. If the win caused you to break even, you must have previously spent an equal amount of money on earlier bets. So where did that money come from? You are back to square one and your ace card on which you were probably hoping to rely has been royally trumped. It is for this reason that we are saying that you have had a big win is unlikely to be much use. Unless, of course, you are the type of person who very rarely bets.

One-off bet

Tip 1. There is no need to dwell on the consequences of such a lucky win - except to say the Taxman will still need convincing that you are not a regular punter. If you aren't, it should be easy to obtain a sworn statement from your friends saying that you do not regularly bet on horses.

Tip 2. If you cannot show that the cash came from non-business sources, the Taxman will assert that the money is undeclared business profits and tax it accordingly. To avoid this check to see if the cash is: a gift/loan from a relative(s), from the sale of personal assets or a Lotto win. But again, evidence is required.

Tip 3. Never explain anything to the Taxman from memory - particularly at the start of an enquiry. This gives you no room for manoeuvre later on. If you need to account for certain income/assets, write down as much detail as you can recall and present that later with the evidence.

The Taxman will simply refuse to accept the suggestion at all without proof in the form of documentary evidence. Even then, if you regularly bet on horses he'll ask about your losses. So save this excuse for that one-off bet.

For more information on tax investigations get in touch now by calling us on 0191 3864786 or emailing information@westwaters.co.uk

Giving the right answers to the Taxman

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