Problem -

Following HMRC's campaign to find people with an undeclared second income you suddenly have a new client; Mr McDonald. He works as an executive chef for a city institution on Monday to Friday. Your new client has become concerned about his income as a part-time caterer which, for the last four years, comes to £8,000 a year before costs/expenses. Your client has produced receipts evidencing his costs/expenses which are mainly food, drink, travel and other expenses.

Food and drink of various types come to 34% of turnover. Mr McDonald reckons that each year his business travel for the catering business comes to about 2,000 miles. Other identifiable expenses total £1,500. Mr McDonald has been based at home for his part-time work which totals about 120 hours a year.

Your client has produced satisfactory original documentation confirming employment income over the last four years as follows:

Gross Salary   £  Form P11D

2013/14    42,000      2,000

2014/15    43,000      3,000

2015/16    44,000      3,500

2015/16    45,000      3,500

Unfortunately, the office junior has miss-filed the original P60's & P11D's. With the present filing problems and back-log of work, these documents will probably be retrieved sometime in May 2017.

Your client assures you he has no other income from any other source.

Your manager has suggested you start with a calculation of what has been paid and then calculate what should have been paid. The difference between the two should be the amount due to HMRC. You need to present a reconciliation of the various amounts to demonstrate the total due to HMRC. Your manager suggests you get some practice with a spread sheet for this one.

Required: For each year, calculate the following: Income Tax and National Insurance due, Interest on unpaid Income Tax and any penalties due in respect of the unpaid Income Tax. You should include a short note detailing your calculations.  Explain any assumptions you make.