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Contractors urged to keep accurate tax records to avoid HMRC scrutiny
Posted Oct 1, 2010
Contractors are being urged to take extra care of their tax record keeping, as the self employed are now at a higher risk of being investigated by HMRC.
Richard Mannion from accountants Smith & Williamson says that the taxman has been tasked with recouping funds to help ease the pressure on public finances. With £900m now being committed to tracking down non-compliant taxpayers, the self employed (including limited company contractors) have traditionally been seen as a group at greatest risk of making tax return errors.
HMRC can carry out checks on businesses and individual taxpayers relating to the current year, and will expect to be provided with records going back at least six years if required.
Entrepreneurs, including new businesses, those with multiple businesses and the self employed are at risk of closer scrutiny from HMRC, warns Mannion.
With an estimated £15bn of VAT liabilities being underpaid, this is another area firmly on HMRC's radar.
Common tax return pitfalls
Mannion has pointed out several areas of accounting which often trip small business owners up.
If you use assets for both personal and business use (e.g. using a spare room in your home), you have to keep sufficient records to back up any utility claims, for example.
If you use a car for both personal and business use, you need to be able to account for the mileage associated with the business, as well as petrol and other maintenance receipts.
The question or putting or removing funds into a business is another frequent cause of mistakes - precise records of any transactions involving personal and business finance must always be kept.
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