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When can HMRC refuse a deduction?

Friday March 2016

You’re having your offices repainted and the decorator has asked to be paid in cash. You would prefer not to, but as he comes highly recommended and is cheap you’ve agreed to go along with it. Will this cause trouble with the Taxman?

HMRC does have some power to say when you should keep documents and, in some situations what form they should take. It’s important to be aware that for VAT purposes HMRC has used this power to impose special record keeping conditions, but these don’t apply to other taxes.

HMRC requires a few other documents to be kept in their original form, either on paper or as an exact replica such as a scanned copy. Essentially, this applies where the document is evidence of tax deducted from income you’ve received, e.g. a Construction Industry Scheme (CIS) statement or P60 for employment income.

Unless you’re required to keep the original documents or copies it’s OK just to record details of transactions. In practice you’ll probably want the documents for your own benefit, especially for business transactions.

There’s no absolute requirement to hold a document for each and every transaction unless it’s of a type mentioned above. Therefore, HMRC can’t refuse a tax deduction for an expense simply because there isn’t a piece of paper to go with it. However, it can make your life difficult.

To avoid trouble with HMRC over cash payments, make a record of the supplier’s name and address, plus the usual information: date, amount, etc. If they won’t give you their details, perhaps you should question if they are the sort of person you want to do business with.



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