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Replies to Queries - 4 - Record-keeping

12 December 2001
Issue: 3837 / Categories:

On the introduction of self assessment, there was considerable discussion about the new requirement for record-keeping to support figures in returns. At one stage, it was widely considered that mileage logs should be maintained for travel by car on business and that receipts should be obtained for all petty cash expenses.

On the introduction of self assessment, there was considerable discussion about the new requirement for record-keeping to support figures in returns. At one stage, it was widely considered that mileage logs should be maintained for travel by car on business and that receipts should be obtained for all petty cash expenses.

As I understand it, the Revenue has never made clear its requirements for record-keeping and I would be interested to hear of the experiences of other taxpayers whose clients have been the subject of Revenue enquiries into Schedule D accounts. Have readers encountered any difficulty in cases where mileage logs are not maintained or where all items of expenditure are not vouched in some way?

(Query T15,927) – Tradesman.

 

First and foremost, there is really no excuse for not keeping records of motoring expenses whether paid by cheque, credit card, petty cash, etc. The problem lies with a vehicle used for both business and private purposes. Here the Revenue expects that it will be enough to keep a record of both business and private mileage and split the total vehicle running costs in these proportions. The question begs – 'how much is enough?'. I have argued that a mileage ratio nearing 60 per cent private should qualify for a 50 per cent claim owing to the fact that the business mileage is centred in London; the private element represented weekend retreats to Cornwall. Subject to the odd clogging on the M4/M5, rocket science is not required to determine the miles per gallon ratio cruising in overdrive is more favourable than crawling along the South Circular. The point is that it is impossible in such circumstances to be precise. A reasonable basis has been applied; what competent Inspector could argue otherwise?

Another acceptable claim, I have found, is where the business pattern and social scene remain reasonably constant. A detailed mileage record over a week or month should satisfy a percentage claim for the year (erring slightly on the side of caution!). Reviewed periodically and drawn to the Revenue's attention at the outset has not caused any difficulties.

With the demise of Hector, one would have expected some updates to the Revenue's booklets SA/BK3 'A guide to keeping records for the self employed' and SA/BK4 'A general guide to keeping records', upon which this unfortunate character is depicted next to an open safe and cuddling a warped filing cabinet, but these original 1995 guidelines still hold good.

To answer the querist's point, both booklets allude to the fact that not all receipts will be expected for expenditure. The advice is to make a note at the time, which goes back to good record-keeping.

If my experience is anything to go by, more attention has been paid to Schedule E expenses claims where, for example, the fixed profit car scheme rates have been claimed. Detailed log books of business mileage are considered essential here; preferably after a few late nights reading the Revenue booklet 490 – 'Employee Travel'. – Jim.

 

As far as motor car expenses are concerned, I have found that the Revenue does not worry unduly about mileage records. In the case of expenditure for which no vouchers are available (e.g. car washing, parking at meters), the expenses should be 'contemporaneously recorded' (as the Revenue sometimes puts it). One should at all times try to avoid the use of estimates (which, being usually made several months after the end of the accounting period, are therefore questionable on that ground alone). It should not be unduly onerous to make notes in a little pocket notebook or diary. Once the total expenditure, supported by vouchers and other records, has been ascertained, a reasonable deduction for private use would not normally be challenged.

As for petty cash expenses generally, there are very few items of expenditure these days for which some sort of voucher is not available. Where no document at all is available, however, a contemporaneous entry in a notebook or diary should provide an adequate record of the expenditure. And where there are neither vouchers nor records, the taxpayer has only himself to thank if he runs into trouble.

When it comes to recording cash takings in a retail business, and particularly where the daily figure has to be calculated in the absence of an automatic cash register or similar machine, I have found that the Revenue regards the pieces of scrap paper on which these calculations are made as 'supporting documents' within the meaning of section 12B(3)(b), thus insisting on going behind the takings figures, no matter how meticulously they may have been recorded. – SHAP.

 

Extract from reply by 'Cornwall':

As regards vehicle mileage logs, where a business vehicle is also used privately, the Revenue will consider the following aspects:

(a) If no mileage log has been kept, how does the client know precisely what apportionment should be used? If he claims that his living-pattern is extremely regimented and the ratio of business/private mileage does not change from week to week, can he support his claim even for holiday/Christmas times? There is bound to be a variation in routine somewhere.

(b) Have dual-purpose journeys been correctly treated as private?

(c) If the client does not reside near his place of business, does he properly regard home-to-work mileage as private?

(d) Supposing the client says business/private mileage is 50/50 and the Inspector does an exercise which proves that business use is only, say, 35 per cent? The Revenue will then expect to adjust all years up to date accordingly, and reduce the capital allowances previously claimed, to match.

With petty cash expenses, there is no good reason why virtually any client cannot operate a petty-cash book and account for such expenditure properly. If the book is well maintained and all expenditure properly vouched, it will indicate a methodical mind on behalf of the client, which will make sure that no adjustments are made to this aspect and also favourably impress the Inspector. Failure to observe these aspects will do the precise opposite.

Issue: 3837 / Categories:
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