Proper Books and Records

Miley Sirus didn’t keep proper books and records. Sure, he only had a modest income and couldn’t afford a professional bookkeeper. Is that last sentence a fact or is it fiction? Let’s explore what Revenue wanted, the money at play, and the result of the case. I will introduce you to

  • Miley Sirus
  • The Appeal
  • What Miley submitted
  • Revenue Findings
  • The Result
  • Key Learnings

Miley Sirus

From reading this case we don’t know what business Miley has. So, let’s assume he sells vintage motorbikes. He is married to Mary, and they are jointly assessed for taxes. Miley is a sole trader and per his tax returns for 2015 and 2016, he has modest profits on a large turnover. In the vintage motorbike business cash is king. According to Miley he often borrowed money from friends to pay up-front costs. This was before reimbursing his friends when he sold the bikes.

2015 & 2016

His tax returns for 2015 and 2016 showed a trading profit of €28,268 and €30,570. For 2015 his return disclosed that he had drawings of €9,805 and he received social welfare payments of €11,911. For 2016 his return had drawings of €46,637 and Mary’s employment income of €13,000.

The Appeal

Miley brought an appeal to the Tax Appeals Commission. This was against assessments to Income Tax by Revenue for the tax years 2015 and 2016. The amount of tax at play is €287,000. Of that €231,000 is for 2015 and €56,000 is for 2016. The assessments for the appeal relate to two issues, namely

  1. Lodgements to bank accounts owned by Miley and Mary greater than the trading income and
  2. Disallowed expenses deducted against trading income.


To give you some background Miley was selected for a Revenue Audit in May 2018. The scope of the audit was his Income Tax returns for 2015 and 2016. At the start of the audit, Revenue became aware that a complete set of books and records was not available for inspection. In short, some bank statements were missing.

But, based on available bank statements Revenue highlighted some discrepancies. The lodgements to the bank accounts didn’t match the trading income returned.

Both sides met in January 2020 and in that meeting, Revenue informed Miley of the discrepancies. They asked Miley to provide explanations for these differences. As no explanations were given, Revenue wrote to Miley seeking explanations. In that letter, they confirmed they would write to the financial institutions to get bank accounts not disclosed to them.

With Covid and a family bereavement, it was late 2020 when things got moving again. Miley confirmed to Revenue that

  • He couldn’t contact the accountant who submitted the tax returns.
  • He had no knowledge of the nature of the lodgements in excess of turnover for the audit period.
  • A new accountant is in place to deal with the audit

Roll on another year. Revenue got the missing bank statements and identified further lodgements. Revenue looked for documentation. This documentation was to support the expenses claimed against the trading income.

Revenue response

The Revenue response was to raise Notices of Assessment for 2015 and 2016. The assessments treated the excess lodgements as trading income for both years. And Revenue disallowed “other expenses” against the trading income. This was because the supporting requested documentation wasn’t provided.

Miley didn’t agree that he owed an extra €287,000. As a result, he lodged an appeal notice with the Commission on the 10th of January 2022. The appeal hearing was on the 12th of December 2022.

What Miley submitted

I found it interesting that Miley submitted a breakdown of his drawings for 2015 and 2016.

Description 2015 2016
Dental Expenses €3,400 €3,400
Drawings Mary €1,333 €5,274
Drawings Miley €26,804 €41,000
Drawings Mortgage €26,804 €47,148
Household expenses €3,978 €7,718
BOI Personal Loan €37,000 €42,000
College/school costs €9,501 €22,218
Total €108,820 €168,758

Further to this the new accountant confirmed he posted all bank entries to a bookkeeping system for 2015 and 2016. And based on a 10% margin for one business and a 2% margin for another business, the profits were

Description 2015 2016
Sales – Business 1 €134,032 €103,810
Less Cost of Sales €120,629 €93,429
Gross Profit – 10% €13,403 €10,381
Sales – Business 2 €614,854 €451,138
Less Cost of Sales €602,557 €442,115
Gross Profit – 2% €12,297 €9,023
Amended Gross Profit €25,700 €19,404

The new accountant submitted that Revenue’s assessments were

“Flawed, exaggerated, and incorrect….”

So, the Commission should instead assess Miley on the figures prepared by him based on his

“Realistic view of the Appellant’s trading activities”

Revenue Findings

Revenue’s findings were that they had identified lodgements in the taxpayer’s bank accounts. These lodgements were greater than the amounts returned in the tax returns for 2015 and 2016. Plus, they received no explanations for these excess lodgements despite many requests.

Given that no explanations were forthcoming, they treated the excess lodgements as trading income.

Revenue also confirmed that the taxpayer failed to produce

” Any or any adequate documentation to verify the expenses he claimed in his financial statements for the periods under appeal”

Resulting from this, Revenue sought to reduce the expenses to a reasonable figure. In their view reasonable was €20,000 for each year under appeal.

In conclusion, Revenue arrived at their figures after a careful examination of Miley’s books and records. As such the liabilities under the assessments they raised should stand.

The Result

 The Appeal Commissioner, Andrew, found as a material fact that

  • The Taxpayer did not maintain proper books and records.

In his analysis, he confirmed that the taxpayer must prove that he/’she does not owe the tax. He quoted a UK case which to me simplifies things a lot.

On appeal to the commissioners, the burden of proof is on the appellant taxpayer because the taxpayer can be expected to know all about his own financial affairs. Whereas the inspector may have little or no knowledge about them apart from the taxpayer’s return.”

The Commissioner further stated that tax law puts a requirement on taxpayers. The law is that taxpayers must maintain proper records. These records must correctly record and explain the transactions of the business.

The result went Revenue’s way and the assessments raised would stand. The only changes were to make some reasonable adjustments to the amounts charged.

Commissioners Findings

The Commissioner was pretty damning of Miley and his accountant. He confirmed the information and explanations given lacked credibility. An example of this was Miley saying he only made a modest small profit. This completely contrasts with the level of substantial drawings from the business in both tax years.

He went on to state that the taxpayer conducted the majority of his banking transactions in cash. Coupled with limited accounting records he wouldn’t permit any extra expenses deduction. So, he also sided with Revenue subject to the deductions being reasonable.

After making the changes the Commissioner settled on adjusted income as follows

Description 2015 2016
Case 1 Trade €345,644 €144,538
Employment Income €11,911 €13,000
Total €357,555 €157,538

The extra tax payable by Miley, assuming a rate of 50% will come to €257,547.

Key Learnings

What key learnings do I take from this? As a business owner, there are some valuable lessons.

Cash is King!

Does the title Cash is King ring true? Certainly not in this case. No receipts or invoices for expenses paid by cash didn’t do Miley any favours. It was Miley’s word against Revenue’s word. As Miley had no evidence to back up his expenses Revenue wins.

Cash businesses receive more focus from Revenue. They do because Revenue view them as a higher risk. As a result, it makes sense for those businesses to have strong cash controls in place. Plus, robust documentation to support cash payments to suppliers and staff. After all, if you claim a deduction for an expense, you need evidence to support the claim.

Sole trader or Company

Should Miley be carrying on his business as a sole trader or company? Given that his profits were grossly understated for the two years, a sole trader set-up worked fine. But, given the amended numbers, Miley would pay a lot less tax through a company. Especially for 2015. Saying that he would need a very high salary to support the level of drawings in both years.

When we see the profits of our sole trader clients increasing, we will always check if a company option works for them. Excess profits after salaries taxed at 12.5% is so much better than up to 55% for sole traders.

Bookkeeping system

Clearly, Miley didn’t have a proper bookkeeping system. His accounts didn’t reflect the bank transactions and there was limited backup for expenses. So, in summary, there was

  1. No Bookkeeping system
  2. The accounts were wrong
  3. The tax returns were wrong

By failing to keep proper books and records Miley broke the law. Why would you break the law and have Revenue breathing down your neck? Miley got caught for €250,000. And that was only two tax years.

This rubbish that he couldn’t afford a bookkeeper or accountant is utter crap. If he could spend €6,800 on fancy teeth over 2 years surely, he could invest a few bob in his finances with about €1.5 million of turnover. He had an accountant but not a very good one.

Keeping proper books and records adds value to your business. We use Xero and Dext for our clients and they are brilliant tools. They do all the basics of keeping you fully compliant but can offer so much more. Those systems and a quality accounting team can add huge value to a business.

Ethics, Morals & Cop on

Let’s be honest Miley lacked ethics, morals, and cop on. What’s worse this case is going to the High Court for its opinion. That’s a complete waste of time, money, and resources.

We would have no interest in working with a client like Miley. We want to work with clients that are honest and working hard to grow and improve their businesses. Clients that have similar values to us. These clients see the value of investing in their bookkeeping and accounting functions.

What we get a kick out of is seeing them succeed. That can mean different things to different clients. But watching a business grow and become more profitable and valuable gives us a buzz. Sure, we are trying to do the same thing ourselves.

Why would you not do things right if you are paying corporation tax at 12.5%?

Need help to keep proper books and records and grow your business? If so, start here