Am I breaking the Law by not lodging payments received?

Teaandcoffee

Hi,

I am running a very small business and receive payment by cash on 90% of transactions. I do not lodge the cash received to my bank account but merely use it to purchase groceries, pay utilities, my salary etc. I am due an audit shortly and I have been told by friends I am in serious hock.

Any insight please?

mickdw

Have you records of all cash taken in, genuine business outlay etc. Have you been paying tax based on real income or basically not declaring the money you managed to spend on personal stuff. Are you v a t registered?

howardmarks

Teaandcoffee wrote: »

Hi,

I am running a very small business and receive payment by cash on 90% of transactions. I do not lodge the cash received to my bank account but merely use it to purchase groceries, pay utilities, my salary etc. I am due an audit shortly and I have been told by friends I am in serious hock.

Any insight please?

Where you lodge money isn't important. Business size is equally unimportant.
Adequate books and records are required by law tho. Income no matter how small is required to be recorded.

Teaandcoffee

mickdw wrote: »

Have you records of all cash taken in, genuine business outlay etc. Have you been paying tax based on real income or basically not declaring the money you managed to spend on personal stuff. Are you v a t registered?

Hi Mickdw, yes I am vat registered, keep records of cash taken in, 100% legit business outlay and tax paid on all my personals.

Hi Howardmarks, my books are kept in order but I have not always lodged moey into my business account but I have always taken note of were this cash has went i.e. spend on utilities, mortgage etc.

seamus

In general it doesn't sound like a problem, once you've got the records right it doesn't really matter where you keep the money.

The one thing that worries me though is that you mention the word "salary" distinct from everything else. If you draw a director's/owner's salary from the business which you declare as personal income, but then use business money to purchases personal groceries and your mortgage, you are likely underpaying on your income tax. But maybe I'm just reading your post wrong.

I think it would be worth engaging an accountant in advance of the audit to check of your process in general just to make sure there are no surprises when Revenue come around.

Peregrinus

Yup. As long as your accounts are in order and you can complete and if necessary vouch an accurate tax return there is no problem. You are not obliged to have a bank account, much less to lodge anything to it. You can keep all your money in a shoebox under the bed if you wish; it's not very wise, obviously, but the Revenue will have nothing to say about it.

dbran

Hi

Whilst it is not obligatory to have a dedicated business account it is definately best practice. Most of the funds should be lodged to it with only a relatively small amount being used to pay cash expenses.

The problem with operating as you are is it becomes more difficult to prove that all the money is being properly accounted for in the accounts as sales and income. Do you keep a till and keep the till roles for example?

Most revenue audits are not random and they are due to there being something in your submissions to revenue that has drawn their attention to you. eg low margins compared to similar businesses in the area, inadequate level of drawings etc.

So in theory it should not matter, but in practice it may be at the very least a source of queries that could catch you out.

It is unclear whether you are operating as a sole trader or a limited company which again is a significant point and you should get some advise from an accountant or tax advisor to get a proper view as to whether you are really in the clear or a voluntary disclosure is required.

Best of luck with it.

dbran