Investigating sole traders
When operating a business as a sole proprietorship, there is generally less likelihood of being investigated, provided that everything is done properly.
However, some individuals have found themselves under scrutiny due to lack of awareness or negligence regarding potential risks. These situations can raise red flags with the tax authorities, as seen in the following examples:
Allowing customers to transfer payments to personal accounts: Why is this being done, and why isn’t it declared?
Transferring money to and from relatives for lending or borrowing purposes: What is the reason for this? Are there clear records or proof of borrowing and repayment?
Sudden increases in wages: Why have wages risen sharply above the average salary? Is there a reasonable explanation for this change?
Unrealistic increases in income: If income has been steady and then suddenly spikes, why has there been such a significant change, and why was income so low in the past?
Personal income not aligning with family expenses: Why does the reported monthly payroll not reflect your actual living expenses? How are you managing to live on a payroll that doesn’t match your costs?
Large sums of money in the bank with no declared source: Where does this money come from, and is there any supporting documentation for it?
Discrepancies between salary and payroll records: Why is there a mismatch between the salary paid and what is reported in the payroll records?
Unaccounted expenses for significant decorations or renovations: Why are the costs of decorating or renovating the salon not fully declared in the financial statements, or why are they reported as much lower than they actually are? Where is the money for these expenses coming from?
These types of inconsistencies can trigger questions from the tax authorities, and if they feel something is amiss, it may lead to an audit or investigation. It’s important to keep thorough and accurate records, declare all income, and ensure that any financial transactions are properly documented to avoid potential issues.