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8 years self employed and no tax return filed

8 years self employed and no tax return filed

I have recently taken on a client.  He has been a partner in a firm since 2003.  Tax returns have been issued since 2004 and not one has been filed up to 2011.  The partnership has made payments on his behalf to meet the tax due on his partnership profit share. Since 2004 these payments amount to some £4,000,000, and his statement of account shows this as being overpaid.

£100 penalties have been issued for each return since 2004. Apart from these penalties the Revenue have never chased him or issued any determinations. It looks as if there quite happy to take the money without the need for returns to be filed.  My client says he has very little income oustide of the partnership so thinks he has probably paid the right amount of tax and is quite happy to carry on this way so long as he is not going to get into trouble for non compliance and its me he is seeking this reassurance from.

What do you think is the appropriate action to take ?

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By noradh
25th Jul 2011 14:07

Notify SOCA and HMRC

HMRC are likely to come down hard on him at some stage. You should immediately notify HMRC that you are now acting to regularise matters. This should ensure that they deal with him under the voluntary disclosure rules, reducing potential penalties. You should also notify SOCA.

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By ACDWebb
25th Jul 2011 14:09

I should have thought

Get them completed and submitted.

For back years that should kill off the penalties (so long as all the tax was paid by the due dates) but going forward they will stick paid or not, and there must come a time when HMRC will get bored and start issuing determinations

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By noradh
25th Jul 2011 14:35

Different experiences

I came across a similar case recently where the accountant took 18 months to prepare the back returns. He thought there was no point in notifying HMRC until he had finished all the work. Half-way through, HMRC pounced on the client, and his defence was that he had instructed the accountant to sort things out. HMRC did not accept this defence, as they had heard nothing from the accountant, and imposed massive penalties. The accountant is now being sued for negligence.

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By ACDWebb
25th Jul 2011 15:02

Agreed

I was merely working on the basis that on the face of it - ("My client says he has very little income oustide of the partnership") and apparently the partnership is up to date (??) so the tax shares should be readily available - it ought to be a relatively quick task.

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By noradh
25th Jul 2011 15:22

Beware

The client THINKS he has probably paid the right amount of tax! Would one want to rely on this, given his compliance record? In any case, he regards his non-partnership income as small, but this could be relative, given that his profits seem to be very large? if he finds it easy to pay £4m tax, he probably has quite a lot of cash floating around!

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By ACDWebb
25th Jul 2011 15:32

Again, agreed

perhaps my first answer was too glib?

To quote NIKE "Just do it"....and soon

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25th Jul 2011 17:41

What are HMRC doing?

HMRC must have had a UTR for your client, as it would be needed for the partnership return, and presumably the partnership returns were submitted, showing he had an income from the partnership, but HMRC didn't pursue the tax returns. Why not?

We had a similar situation recently with a CIS subbie, registered for self employment since 2006, and he receives CIS income (presumably reported by the contractor), but HMRC never sent a request for him to complete a tax return! Why not?

He came to us because he thought the CIS Tax was his tax liability, but he had heard he may be entitled to a tax refund (but he was wrong ... he has a tax liability). We informed HMRC and they have now requested returns for 2010 and 2011!

How many more are slipping through the net?

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25th Jul 2011 17:44

Why a SOCA report?

I notice it has been recommended by a poster that SOCA should be notified. I would be interested in David Winch's view on this.

It appears from the OP that the client believes he has paid the right amount of tax (as well as wishing not to get in trouble). If I have learnt correctly at the feet of the master :-) , I would have thought that a SOCA report was probably not required. But I would be interested to know if I have interpreted this correctly.

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25th Jul 2011 19:30

SOCA report (or not)

I did have (and still have) misgivings about the suggestion in an earlier response that a report should be made to SOCA.  There are two sides to this.

In favour of a report:  It seems that returns have been issued and the client has simply not completed those returns.  He is aware that he should have completed returns because he has suffered penalties.  But he continues year after year not to file his return.  One might consider that to be dishonest.  Although the tax demanded has apparently been paid each year there may well be an occasion when the amount demanded for a particular year has been less than the amount due.  One could view that as tax evasion.  Any tax 'saved' would then be a benefit of crime and (arguably) that could trigger a need to make a report to the firm's MLRO or to SOCA.

 

Against the making of a report:  If the taxpayer genuinely believes that he has paid the right amount of tax (due on his true income) then (even if he is mistaken in that belief) he cannot be said to be in possession of a benefit which he knows or suspects derives from crime.  If he has no such knowledge or suspicion then there can be no 'criminal property' (as defined by s340(3) PoCA 2002).  If there is no 'criminal property' there can be no money laundering.  If there is no money laundering there is nothing reportable under s330 to the firm's MLRO or to SOCA.

 

Further, it does appear that the information may have come to the accountant in 'privileged circumstances' - see s330(10) - because the taxpayer has volunteered this information to the accountant in the context of asking the accountant to regularise his tax affairs.

My own view is that I would not report this to SOCA.  I find the arguments against making a report the more compelling.  But I would make a file note that I had considered the issue and how I had arrived at the view that a report is NOT required.  If I were not the firm's MLRO I would certainly discuss it with him (or her) and then send the MLRO a copy of my note of our discussion and the conclusion not to report.  In view of the size of the amounts involved I would consider obtaining an outside legal opinion on whether a report was required (particular if the MLRO was a bit nervous about not reporting).

David

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26th Jul 2011 09:33

Not unique

Of course it's unusual to be given this much rope by the Revenue.  We havea couple of similar people, one of whom only co-operates with self-assessment about every 5 or 6 years.  He pays the determinations and sometimes more in advance of the 31 Jan date.  It's only daily penalties that chisel him out.  So we did a half-dozen returns for him in 2002, and another bunch in 2007.  My alarm is set for 2012.

It's the reluctance of the Revenue to use the daily penalty regime that causes this and in truth I suspect that when we hit May 2012 and automatic (?) daily penalties come in, it may start to chisel some of my 3 and 4 years behind people out.  

As regards the OP, the Returns should be a piece of cake so long as investment income isn;t overly confusing and the only dilemma lies with the out-of-date returns.  For 2004/05, if the tax paid exceeds the tax assessed then tough, the assessment stands.  If the assessment is under-shooting then the Revenue will presumably fix it with a discovery assessment for the remainder.   

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26th Jul 2011 11:04

Start now and notify HMRC

I agree with all the replies above which suggest that the OP should ensure the taxpayer brings the Returns up to date and relatively early in the process make contact with HMRC.

I think the new format penalties for 2011 returns, is the OP's chance to try and push the taxpayer back onto the straight and narrow.

I see a number of risks to the client depending on the exact circumstances :

2010/11 penalties will arise if return not filed on time regardless of whether tax is paid.If he is paying £500k tax p.a. with no difficulty, there is almost certainly going to be some interest/investment income and it will not take too much other income in the early years to give him a penalty and probably a surcharge liability in later years.At some point it is likely that HMRC will decide to pursue the outstanding returns and potential raise daily penalties.

In any case the longer it is left the harder it will be to prepare accurate returns for the early year.  Given the taxpayers compliance history, I wonder whether he will be able to remember all the bank / savings accounts he has operated over the period.  Therefore the longer it is left the greater the risk of error in the returns and therefore of penalties for inaccuracy.

Otherwise good luck to PaulD as despite the straightforward partnership income, I have a feeling the work involved elsewhere will be somewhat more complex.

 

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10th Jan 2016 07:13

This is why I refuse to hire you people

 

"Notify Her Majesties Revenue and Customs"

 

You're a treacherous lot. Turn coats. Back stabbers. These forums are the reason I never trust a CPA with ANY tax related matters. All our accounting is outsourced.

Taxes are theft. They are a form of slavery. They are why the American colonists rebelled against King George. Now a lot such as you will never admit this. Since you have spent your entire lives in accountancy. Your payment depends on your job.

 

I hate accountants. I hate your smug attitudes. Telling me what I "can" and "cannot" do with my money that I sacrificed, and worked for 20 years. I was making things happen. Unlike taxes. The facts are none of the taxes forcibly taken under duress by HMRC go to public services.

I am appalled by this forum of snakes. You are NOT on the side of your clients. The advice on this forum is to stab you're client in the back and sell him down the river Thames to HMRC. Then justify it amongst yourselves as some kind of "favor". Disgusting!

 

As a business owner I am very happy to have found this forum where I can see what really goes on. My suspicions have been verified. I have never been happier our accounting is outsourced where preparers cannot collect whistle blowing turn coat rewards from HMRC.

 

You bean counters .....

 

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BEANCOUNTER123
13th Oct 2016 16:15

BEANCOUNTER123 wrote:

This is why I refuse to hire you people

Any advisor worth his salt is either a member of a professional body and subject to PCRT, or voluntarily follows it. I think you'll find chapter 5 covers it.

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13th Oct 2016 15:17

Coming from someone who doesn't pay PI premiums each year ... yawn

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13th Oct 2016 16:07

it's 'stab your client in the back', not 'stab you're client in the back'...

I trust grammar is not imperative in your job... ;-)

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