My mate said… 4 reasons why others may be claiming things you aren’t

Kirsty Young Advice and Tips, Expenses

We’ve all been there. That conversation with a friend or business colleague that makes us feel like we are missing out! How could they be ‘having their cake and eating it’?

In a business accounts context, maybe you’ve heard they are claiming for something you aren’t.

Or that they are putting through expenses in their business that you’ve been told you can’t.

Or have some clever tax wheeze they learnt from a mate too.

As accountants, we have these types of conversations daily with clients and business owners who are wondering the exact same thing. So, we thought it was time we gave you the 4 most common reasons why this could be the case.

 

Reason 1: They’ve never been caught

To be blunt, they could actually be doing something incorrectly and it’s just that they’ve just not been caught – yet.

One of the claims we hear from business owners who have previously completed their own returns is: ‘Well, the tax people/HMRC have never investigated me, so….’.

Sadly, not being investigated does not mean the HM Revenue & Customs agree with everything you have claimed.

Most of the time, HMRC are just seeing a few figures in boxes. So they have no idea without asking what those figures are made up of!

HMRC resources appear stretched, as you will find out if you’ve ever tried calling them in recent times! So it should not be a surprise that not every return gets checked.

 

Reason 2: Incorrect or out of date advice

Unless your friend is an accountant, financial advisor or just plain obsessed with tax law, they may actually be claiming something they are not eligible for, due to them being given incorrect or out of date advice and information themselves.

After all, they’ve asked a professional/read the HMRC website from end to end and been given an answer. So why would it be wrong? Several reasons actually….

– Changes in tax law

Tax law is ever changing. Allowances change every year. New rulings in the tax courts change practices. Old allowances are replaced with new ones. Some tax breaks are frozen or reduced. Some schemes simply disappear altogether. You only have to look at our update on the recent Spring Statementto see how far-reaching these changes can be – and will continue to be into the future.

– Out of date advice

It’s so easy to have received advice that’s not quite right now even if it was just a few months ago. Also, accountants come in all levels of specialisms and experiences. In an unregulated accountancy world, it is hard as a business owner to understand if the advice being given is correct.

– Professional interpretations

On top of this, much of the advice given by accountants is an interpretation of the law based on specific situations. So, when you are told something isn’t claimable when your friend is claiming it, it could just be a difference of professional opinion, given the circumstances.

– The pace of change

Such is the pace of change in business these days, there is also the chance that the law has effectively changed since they asked their accountant and you asked yours.

So, who ultimately carries the can? The risk is always with the business owner. You sign each return as being “’correct and complete to the best of your knowledge and belief’. So it’s important not only for your peace of mind, that you are happy with your return.

 

Reason 3: They think they are putting it through and really they aren’t

This used to be very common, although less so in a world of cloud accounting.

It may be that your friend or acquaintance submits their paperwork to their accountant each year. They might then presume that their accountant is ‘claiming’ for everything given to them.

However, it’s common practice for an accountant to disallow some of that expenditure in line with the law, when preparing the returns. Hence the actual ‘claim’ for tax deduction may not be what their client expects. How much of this is communicated to the owner at a detailed level varies from accountant to accountant. So it could be that your friend is simply giving you an uninformed viewpoint!

 

Reason 4: It’s a good idea for THEM, but not FOR YOU

Where tax efficiency is concerned, so much depends on individual circumstances as to whether something is ‘worth it’ in terms of a tax claim or strategy.

It might be that in your friend or acquaintance’s specific circumstances it makes total sense to do something, whereas in yours it simply does not.

 

Summary: treat tax advice with care

In a world where you as the owner is legally liable for your returns, it is so important to ensure you are confident in the advice you are receiving.

It is also important if you are investing in an accountant to have a great, trusting relationship where you understand the issues and have confidence in their answers.

Please speak to your accountant to discuss if it applies in your case. If they are the right type of accountant, they will be more than happy to discuss the issues and help educate you.

 

Take advice from those who really know

Ask your accountant or book a consultation with us. If you don’t have an accountant, or feel your current accountant isn’t as up to date as you would like, we’d love a chat about how we can help.