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Hiding from HMRC and not paying tax - What is your advice?

Hello all,

I work in management accounts, so I could only answer this with a broad overview.

Someone recently asked me for my advice. Here is his situation:

Ran his own business as a sole trader for many years...didn't ever pay any VAT (and should have done) and didn't may much income tax. The HMRC caught up with him and sent him a huge bill which he initially paid on a quarterly basis, then stopped paying, sold his house and all other assets and lived on the cash for 2 years. He is now working as a sole trader again (different company name), putting everything through his partners bank, and not paying any income tax (doesn't turn over enough for VAT). He has basically 'disappeared' on paper and is hiding from HMRC.

He is now 8 years on from HMRC first finding out he owed them money. He thinks because it's over 6 years now that HMRC can no longer chase him for the initial money owed for VAT and income tax.

My advice to him was go see a qualified tax advisor, seek legal advice and start paying income tax now!!!

I'm just curious as to where he does go from here? I thought that there were no statute of limitation on tax owed, so there is no such thing as a '6 year rule? Am I right?

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12th Dec 2011 14:52

you are

they can go back more than 20 years - does his partner know he/she is participating in this fraud?

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12th Dec 2011 15:05

Yes he said his partner is

Yes he said his partner is aware of everything. And I assume that she would also be liable to questioning when HMRC finally catches up with him?

He didn't tell me what sort of money was involved, and I didn't ask as I didn't really want to know, but I’m assuming it's a substantial amount being enough to make him sell up and hide.

Also....it gets better...he said he was planning on landing one of his debtors in court for money owed to his current business...to the sum of around £15k, even though he is not paying tax or declaring any income!

 

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12th Dec 2011 15:08

He was under the impression that if caught then he would just have a huge bill again. But my initial thought was that he would be lucky to avoid a custodial sentence.

 

 

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12th Dec 2011 15:29

walk away now

You have indicated that you are a management accountant, but you are an accountant and if you decide to give him any advice, I would consider that it would fall into the regulated sector and hence you will be liabile to follow the money laundering rules that all us practising accountants face and struggle to cope with. This is just my view and others will probably disagree.

It would appear to me that by what you have mentioned he is deliberately trying to arrange his business affairs as to evade tax either past or present. He is also drawing his partner into this. If I were involved with this issue I would certainly consider a money laudering report as I do not consider such advice has come from legal privilage and I would want to safeguard myself against prosecution.

From what you have said these are deliberate acts and do you really want to give him any further advice on this matter. I think you are right to recomend him to a tax specialist, but be sure that it is a good chance that they will make a money laundering report.

Sadly, from what I see, these people nearly always get away with it and HMRC seem to let them. They would rather go after the easy picking of good honest business people that are in the system and nick pick their expenses claim. These rouge businesses have no assets that HMRC can take and therefore the only other option is prison.

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12th Dec 2011 15:31

Custodial sentence

A custodial sentence is very unlikely for tax fraud.  It's very rare, since standard practice is to get the money over and above anything else.... normally HMRC will trade the payment of all outstanding tax & penalties in return for not prosecuting (COP 9, etc).

The six year limit will most certainly not apply for such a case of blatant tax fraud.  And anyway, if the assessments have been issued and the taxpayer has simply not paid, then the normal enquiry deadlines are not in point - it's just an outstanding debt.

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12th Dec 2011 15:43

I didn't give him any advice apart from see a tax specialist, seek legal advice and start paying tax. And will certainly not be giving him any in future.

I guess I am asking here for my own curiosity and future knowledge.

He asked me this one night in the pub.....you know what it is like...when someone knows you are an accountant they always have a question for you. Like a man with a van always has lots of friends that need something moving.

I just simply don't know enough about HMRC rules to give advice out, and even if I did I wouldn't dish advice out in the pub on such a large matter to someone committing fraud.

I suppose with him 'hiding' from the HMRC and moving house several times, and having no tax agent, he has no idea of what correspondence HMRC are sending him.

If he came clean, but has no assets then would the HMRC let him pay back an affordable amount each month?

 

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By Monsoon
12th Dec 2011 17:11

.

accountslady wrote:

If he came clean, but has no assets then would the HMRC let him pay back an affordable amount each month?

They wouldn't have much choice! Or, they could bankrupt him and get nothing and he'd have a clean(ish) slate. Obviously, taking monthly payments would be the sensible option, but HMRC aren't always the most pragmatic when it comes to tax debts...

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12th Dec 2011 17:52

he may have nowt...

but does his partner (in crime)?

Tis true thoug,h folks like this DO seem to get away with it.

Maybe he could go into politics....

or banking....

or.....

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12th Dec 2011 18:39

@memyself-eye

You comment reminds me of an old saying .... 'many a true word is spoken in jest' .... but maybe you weren't jesting ;)

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13th Dec 2011 10:33

No, his partner in crime (I like this - very funny) has no assets either...or so he said!

Why people don't just pay what they owe is beyond me.

 

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13th Dec 2011 10:53

This is to a certain extent why CIS was introduced

accountslady wrote:

No, his partner in crime (I like this - very funny) has no assets either...or so he said!

Why people don't just pay what they owe is beyond me.

Usually because any cash they get is immediately spent on personal self gratification and nothing put by for liabilities such as tax.

They would rather dodge their responsibilities.

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13th Dec 2011 12:41

If he "hid" as you say and

If he "hid" as you say and his SA record was never closed it could well be HMRC have been making determinations on him year on year (and indeed possibly estimated VAT assessments). When (if) HMRC find out where he is they may open an enquiry etc or they may just look at the debt augmented by the determinations, invite him to pay and proceed straight to bankruptcy if he does not. Meanwhile they could of course then assess his partner on the business profits and get more tax that way.

There is no time barring of HMRC debts and if he has determinations which are more than 4 years old his options are very limited.

He may manage to keep off their radar but I would guess that at some point they will find him and he will end up bankrupt. Keeping off the radar is going to involve in the long run never claiming benefits and not getting a job taxed under PAYE.

I'd really endorse the advice above to keep well out of it. Perhaps after you have explained to him that HMRC can raise determinations and that these and any "real" tax debts are never time limited. 

 

 

 

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14th Dec 2011 09:25

I bumped into this guy again last night - I must start frequenting a different pub - he said he has decided to complete SA's for the years that he has not paid tax (about 6 years) and wait for the bill from HMRC.

He didn't say what he was going to do once the bill did arrive!

But will HMRC just accept the SA's returns for the past six years given that he has been off their radar? Surely they will investigate him? Or do they just want the tax owed?

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14th Dec 2011 10:03

Coming clean

He may not wish to pay for specialist advice but he will probably save money doing so in the long run and it will help take the fear out of the process. It seems he doesn't want to live this way anymore and wants to come clean with HMRC? If this is the case and he does declare everything he's likely to be treated much more leniently than if HMRC catch up with him which they probably will do eventually anyway. I wouldn't recommend he does this by himself!

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14th Dec 2011 10:19

I think your 'friend' may have no idea what is about to hit him.

Helen Crowley wrote:

If this is the case and he does declare everything he's likely to be treated much more leniently than if HMRC catch up with him which they probably will do eventually anyway. I wouldn't recommend he does this by himself!

The problem here is that he has already been 'caught' by HMRC and has done a runner from those payments. I know HMRC are a bunch of idiots, but they are not so stupid as to get caught on the hop twice.

I suspect that a further investigation will be inevitable as will be interest and penalties. He will be lucky to avoid criminal tax evasion charges, although if HMRC can bankrupt him, take any assets (although you say there are none) and ensure that a reasonable % of future earnings go towards paying his tax liability then that should satisfy them.

He is not going to get off lightly with this, even if he pays the tax in full. They have probably already started recovery proceedings against him, he's just not aware of this as he has been 'on the lam'.

My advice to HMRC - Book Him Danno!

 

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14th Dec 2011 09:58

Yes, it does seem like he wants to come clean.

Yes, I told him again to see a tax specialist or a good accountant....and the sooner the better!

 

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14th Dec 2011 11:55

If he does own up and HMRC did decide to go ahead with criminal charges what would be the outcome? I know it depends on the value involved (which I have no idea what that is), but would a custodial sentence be likely?

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14th Dec 2011 12:07

Lets hope so

accountslady wrote:

If he does own up and HMRC did decide to go ahead with criminal charges what would be the outcome? I know it depends on the value involved (which I have no idea what that is), but would a custodial sentence be likely?

Lets hope so and one for his partner as well.

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14th Dec 2011 12:19

Is a custodial sentence likely? Probably not, but it depends...

accountslady wrote:

If he does own up and HMRC did decide to go ahead with criminal charges what would be the outcome? I know it depends on the value involved (which I have no idea what that is), but would a custodial sentence be likely?

Generally not, although what this guy has done is pretty bad. HMRC generally just want the taxes plus penalties and interest paid. However, if the HM Inspector he's done a runner on wants to pursue it and is able to argue that publicizing his behaviour might work as a deterant ("pour encourager les autres"), then criminal proceedings are possible.

Generally, I would expect the threat of criminal proceedings only to extract the money out of him. For someone who has (allegedly) no assets and no money other than what he earns through work then a custodial sentence would be counter productive as it would make it almost impossible for him to get a job afterwards and repay the owed money.

As I say, it all comes down to HMRC's attitude, which is difficult to prejudge.

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14th Dec 2011 13:37

Surely his best option is to hold his hands up to HMRC and declare everything, wait for the bill, then either pay it or go bankrupt.

Then there would be no more backlash and his partner would be taken out of the equation.

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14th Dec 2011 14:03

Ps.....he is not my 'friend'; he is just a face I know from the village where I live who thought he could ask me for advice.

I work in Management Accounts...and pay my taxes....but I do find the financial reporting side of things very interesting and I am asking these questions to satisfy my own curisoity and further my knowledge.

 

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14th Dec 2011 17:02

You know where you went wrong don't you...

accountslady wrote:

Ps.....he is not my 'friend'; he is just a face I know from the village where I live who thought he could ask me for advice.

This is why you should never admit to being an accountant, solicitor or car mechanic - as these are "black arts" and you will always get these little down the pub conversations.

When people ask me, I tell them that I am a retired history teacher. Nobody EVER needs advice on who won the Battle of Hastings.

P.S.  It was William the Conqueror.

 

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