A former window cleaner discovered to his cost that honesty with the tax authorities is the best policy after giving up his round to devote himself to the more lucrative business of trading in collectible American comic books, videos and DVDs.
The man was hit with a bill for more than £14,000 in back-tax and penalties after failing to keep adequate business records or to inform HM Revenue and Customs (HMRC) that his source of income had radically changed.
He admitted that he had ‘fabricated his source of income’ – having continued to state on tax returns that he worked as a self-employed window cleaner – but nevertheless argued that much of his profit had been derived from selling off his childhood collection of comics and videos, which he valued at £38,000.
However, following an in-depth inquiry into his affairs, HMRC pointed to six-figure sums that had passed through his bank account and argued that he had been engaged in buying and re-selling collectibles on a substantial scale. He was assessed for more than £10,500 in unpaid tax and issued with late payment penalties of more than £4,000.
He argued that it was unfair that he was being taxed on the sale of items from his private collection. He said that he had never expected his business to take off as it did and that he had been so busy that he had no time to keep detailed records of his income and expenditure. Although he had not been honest, he submitted that his declared income was a reasonably accurate reflection of the reality.
However, in rejecting his appeal, the First-tier Tribunal stated, “He is not able to provide any evidence whatsoever to show that profits from his business were not entirely derived from stock purchased for resale. In the absence of any evidence to show that part of his turnover related to a private collection, we have to conclude that it represented profits from the resale of stock and that HMRC have accurately computed those profits and the additional tax due.”