"Accounting" and Psychotherapy

I am not going to talk about "Accounting" from a psychotherapeutic point of view, that is, accounting as opposed to discounting. I am going to talk about the more prosaic issue of keeping accounts or other records of our business transactions primarily for tax purposes.

If you are self-employed you are obliged to keep records of your business transactions for the purposes of preparing your Income Tax Return Form. You can find detailed help about this on HMRC's (Her Majesty's Revenue and Customs) website. There are other pages if you trade through a partnership or a company but the principles are the same. The record-keeping requirement applies even if you only use SA103S-Self-Employment (Short) Form which is the form you use when your turnover (Total Fees Earned) is less than £70,000 (2010/2011).

The issue I want to look at is the requirement:

            "Your basic business records must include:

                        A record of all your sales and takings

                        A record of all your purchases and expenses."

I want to focus on the record of sales - that is 'fees receivable' for us therapists.

It is vital to your position vis-a-vis HMRC that you can demonstrate in writing what your income is. Should your records fail to do this you may find that HMRC decides to work out for themselves what they think your income should be. This can happen if they call for your records and there are gaps in them. By gaps I mean that HMRC can show you have left a fee out of your total fees figure in your Return. Sadly, it can be as little as one fee left out because you have forgotten to record the cash received and that can leave you open to HMRC determining your income for themselves. It will then be up to you to prove them wrong. In the absence of good records you may not succeed.

For example, how about HMRC saying that they have checked your diary and one of your clients fees which you received in cash was missed out of the record of total fees (Turnover) or that there is an inadequate record of whom you have seen. As a result HMRC cannot be certain that your total fees are complete. Say you have no other job. Then a calculation may run:

            You charge £40 per hour

            You work, say 48 weeks, HMRC's view not yours and there are 5x8 available hours per week and again this is HMRC's view and not yours.

This then gives rise to an income of (5x8x48x£40) and this amounts to £76,800! Now I know that that is entirely unreasonable as a calculation. However, an officer from HMRC will not know this. You may be able to prove some of his or her assumptions are wrong. However, it is best never to get into the above situation because it will cost you time and money. It may well cost a lot of money to employ a Tax Accountant to fight HMRC on your behalf. The answer to this is to keep adequate records.

Now in theory this should never be a problem because of our requirement to keep records of our work with clients. However, care is needed to ensure that you will not be submitting to HMRC confidential records of your clients.

Fundamentally, you need an accurate record of all sessions in terms of date and time and the amount paid together with a client identifier. This record (in accounting terms a Fees Day Book) should not contain any confidential information relating to the client. However, you should be able to agree this record to your diary, if required. The Fees Day Book is then used by you to produce your total fee income at the year-end. I believe it is also very useful to be able to maintain to HMRC that all income is banked whether received in cash or cheque. These two points will stop HMRC alleging that there could be a gap in your records. It is the issue of an accurate recording of cash income that is often crucial. If that income is always banked there can never be an argument about fees being received in cash and spent without being recorded. Another related issue is that you might find it useful to have a separate bank account for your business income and expenses. This may limit what records you have to provide to HMRC. It is of course always possible for HMRC to call for your private records as well as your business records.

HMRC are able to and do call for a small percentage of people to produce their records each year on a random basis so there is a risk for us all that we may have to prove our figures. It will also be important to provide the workings that connect your records to the figures in your Return. This is the function of the Fees Day Book. In addition, if there is an error in the figures reviewed by HMRC they will go back to earlier years and how far they go back depends on the type of error. The minimum they will go back will be six years. You also need to be aware that where errors are found and tax is underpaid then interest and penalties will arise in most if not all cases.

 

 © 2011 James Sweeney

Web :   http://james-sweeney-counselling-and-therapy.com

Email : James@ljsweeney.co.uk