2. Unanswered money

A hardworking couple Mr. A and Mrs. A operated a small snack shop which was around 10m² in size. The retail firm received cash takings and paid most of the expenditure by cheque. It was after 10 years’hardship that the couple was able to earn a more stable level of income.

All daily cash takings were recorded on cashier tills which were normally banked in by Mrs. A into the company’s account. One day, Mr. A received a notice letter from the Inland Revenue Department that his firm had been selected to be tax audited and the officers would visit him soon.

Without casting doubt in his tax reporting, Mr. A considered there was no necessity to consult a professional accountant for advice. Mr. A received the tax officers and explained to them all sorts of operations and records. During the preliminary review, the tax officers had not noticed any substantial problems. However, when screening the personal bank account of Mrs. A, the officers had found some rounded sums of deposits (usually between HK$2,000 to HK$5,000) made to the account weekly on a regular basis for over three years. From the evidences unveiled, these cash deposits should be sales takings not recorded in the firm’s books.

The tax authority had certainly asked the couple for any explanation on the ‘extra’ monies. Mrs. A, unexpectedly, remained silent on the subject. This had made Mr. A mad! He blamed his wife for dishonesty to have stolen monies from the shop to make them her own ‘pocket monies’. After taking a little more thought, Mr. A considered it impossible to earn an income from his operations doubling that of his average sum of around HK$20,000 per month. Because of these unclear circumstances, Mr. A had a severe quarrel with his wife in front of the tax officers but this could not help any resolution of the problem. The Inland Revenue Department then issued estimated assessment to the couple and might levy heavy penalty.

Mrs. A was in a desperate mood. Through a friend’s introduction, she came forward to our firm for assistance without her husband. We certainly enquired on the sources of her ‘extra’ monies. Weeping while speaking, she requested us not to let her husband learn about the actual story behind. The truth was that these ‘pocket monies’ were received from Mrs. A’s younger sister who was working as a PR lady in a famous night club. This blood-and-tears income was saved up by the sister who tendered round sums to Mrs. A for custody with the purpose of building up reserves for future use. The sisters had recorded details of the deposits in a diary. The background story was then unveiled but the remaining question was – how would we convince the Inland Revenue?

Within a relative short time, we had summed up information on these ‘pocket monies’ for presentation to the Inland Revenue together with a passionate letter written by the younger sister. The officers did listen carefully to the explanations and checked the details of the deposits to the bank account and diary. They ultimately believed in the truth presented and judged that these monies were not the shop’s takings and as well, not within the scope of Hong Kong taxation. This was a happy ending to the couple and the sister because there was no tax and penalty finally charged but they just needed to pay a certain additional professional fee.