I was put in a difficult position by a client recently. I was helping them with their self assessment tax return, and was being pressured to include a couple of expenses that I did not consider to be legitimate business costs.
Within reason, and subject to some legal exceptions, a business is allowed to incur a wide range of expenses in the furtherance of its objectives. When you are self employed, or a sole trader, the onus of responsibility is the other way round – the basic assumption is that all expenditure is personal, unless you can demonstrate that it is business related.
In particular, I was being asked to include two items of significant value as business expenses, based on their presence on a credit card statement and the client’s insistence that they were business related. Bearing in mind that I had already had to consider whether towels and a set of weighing scales could be included, I felt the lack of any appropriate or independent evidence of the two items, such as a copy of the invoice and the fact the two large expenses were bought in the previous accounting period, I decided that, in my professional judgement, I would not allow them. This did not please my client.
Accounting is often considered an exact science. In my view, it is an art. Its purpose is to paint a true and fair picture of what has happened, in a way that makes sense to the person looking at the information.
It is the responsibility of whoever is putting the accounts together to ensure that there is appropriate evidence to support their view. Of course, what you might want to see may vary depending on whether you are the business or the tax man.