The Cash Test – How the taxman will try to catch you out!

A tax inspector speaks…..

Now, Mr Jones, let’s look at the cash flow through your shop for this particular week. I’m only looking at hard cash, not cheques or credit cards or anything else.

You’re closed on Sundays, aren’t you, and you did say that you always start the week with a float of £100 in the till? And you bank the cash on Wednesdays when you close at lunchtime? And you decide on how much to draw for your own use by taking all the surplus cash over £100 when you close on Saturday evening? And you never needed to top up the float from your own pocket? Well, the figures for this week show you have been a bit economical with the truth, don’t they?

Mr Jones replies….

Nonsense – look at the figures for the week – I started with a float of £100, and I had cash takings of £1,850 during the week. I banked £400 of that on the Wednesday and I took £550 for my own drawings on Saturday as I told you, leaving the float of £100 for the Monday. I spent the other £900 on stock – for which you’ve seen the receipts – so what’s the problem? Look, let me draw you a picture:

So what’s wrong with that?

The inspector chuckles…….

Ah, Mr Jones, we look more carefully than that. Let me draw you a picture:

You do see it, don’t you? I’ve used the same figures as you, but I’ve been a little more careful, and looked at them on a day to day basis.

So if you have been truthful about your cash takings, how do you explain the situation on Wednesday evening? After you had closed for the day and banked the £400 cash I see going into you bank account, you had negative cash in the till! That’s impossible! How can you have a negative amount of cash??  What is it, anticash, like antimatter? Oh, no, no, no, someone’s been telling me porkies about their cash takings…..

Do forgive me, Mr Jones, I tend to get a little carried away on these occasions…back to business…

You do appreciate, don’t you, that this means we can no longer rely on your business records as a basis for assessing your profits? Instead, I’ll just have to make an estimate to the best of my judgement, and if you don’t like it, you can always spend a fortune in professional fees arguing the toss before the General Commissioners.

Now let’s see, a typical shop like yours in this area would have profits at least 30% higher than yours, so why don’t I just add 30% to your profits? Of course there will be interest and penalties to pay as well as the tax!