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How far back can HMRC go?

Client has another business which has never registered as a business - it publishes a periodical and operates like a similar business as a cooperative. Client has never set out to decieve, funds are reinvested, but has sought advice from publishers, other journals and an IFA who said 'let sleeping dogs lie'.

Obviously, the business needs to be legitimised as either a limited company or a cooperative (I need to establish membership and/or constitution), but how do I approach the Revenue? It appears that records go back over 10 years. The current gross income level is about £30k pa, I do not know about expenditure yet.

Any thoughts, help or prayers gratefully received!

Graham.

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02nd Feb 2007 11:36

well.............
......Graham, a touch of care required now. Depends what the outcome of his "thinking" is, and this could get tricky.
You can't legitimise by incorpotation as you imply - on the facts presented thus far it seems he was a straight forward sole trader conducting an undeclared business for profit (on the side from his declared business).

So far he appears to have given you no earthly reasonable excuse as to why he could have thought it non-declarable. Can he or you argue it was genuinely conducted WITHOUT a view to profit. Helluva long shot, but if his profits were truly de minimis, and there was some clear authentic altruistic reason (furtherance of science etc etc). Again, you have to establishe the "facts".

Last but not least, if the result of his "thinking" is that he decides not to declare (assuming there are no grounds for it not being a declarable trading activity) then you are legally obliged to send ML report (and should do so to protect yourself, I'm afraid) and, if you belong to one of the professional accounint bodies, will be required to cease acting for him.

Are you doing enough to influence his "thinking" ?

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By Anonymous
02nd Feb 2007 09:40

Thank you for the comments
Thank you to everyone who has commented.

I have put it to the client that now it is time to ascertain what the position is.

He is thinking about it!!

EDIT
Any further comments/advice would be gratefully received.

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01st Feb 2007 13:29

I have been asked for information back to 1970
My client didn't realise that he had to declare his bank interest as it already suffered tax at source and we are in the process of sorting this out. The interest was only in the region of £100 per annum, so no great shakes, but the Inspector has asked for records going back to when the account was opened.

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31st Jan 2007 21:06

need to sort out...
....the actual financial position before you do anything at all.

Certainly before you approach HMRC as this will partly determine how you play it. No good going forward to them until you know the full picture.
(this sort of assumes there was no evident problem which is about to get rumbled before you approach HMRC ; better you get to them before they get to you for both "negotiating" position and technical level of penalties and their attitude).
Of course, if all the income is offset by allowable expenditure, frankly the problem barely exists for all practical consequences.

As regards ML, that of course is a question of whether the client should reasonably have known he was evading tax / gaining financial advantage. This is supposedly an objective test. You don't really say why he thought it was not reportable (IFA's helpful input would actually be pointing in wrong direction, would it not?). Again, do the numbers first. If there is no taxable profit, there is no financial gain so no agonising (although no doubt some jobsworth will argue that he gained by not having to incur accountants fees!! The joys of legislation). If there was finacial gain, then you are going to HMRC, so no practical problem in reporting it as ML at same time (other than complete waste of your time and taxpayers money, but hey, who cares. The joys of legislation).

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By Anonymous
31st Jan 2007 13:31

Thank you for the comments
So how would others approach this?

Notify the Revenue as of today of a new business?

What are the ML consequences? I do think that there was never the intention to commit fraud or anything underhand, although I must admit I am disappointed (a slight understatement?) that they didn't think they were doing anything wrong.

I now have some more information (which probably isn't relevant) - there is no membership or constitution, and the annual income seems to pretty much get spent on allowable expenditure.

Once again, comments and prayers gratefully accepted!

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30th Jan 2007 17:07

...and they do
I have a client (aquired, so not guilty) for whom the Revenue have gone back 15 years- he is in his thirties and can show no evidence of tax paid on earnings since he left school!
They've hit him for £41k.

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By Anonymous
30th Jan 2007 15:28

a long way...
HMRC can go back 20 years in the case of fraudulant or negligent conduct (S36 TMA 1970).

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By Anonymous
12th Apr 2007 11:18

Update

Further to the kind comments I received on this tricky subject, I just thought I'd give you an update.

The business is genuinely run as not for profit. As previously mentioned, it publishes a periodical relating to a particular continent (not Europe). It is not political, although there is a sister publication which is partly political (but that it dealt with under CT). The organisation started receiving serious money - £10k p/a - from the publishers about 10 years ago, and the royalties have steadily increased since then. However, most of the funds on an annual basis are spent - editorial expenses (at way below the going rate), funding of conferences, etc.. The organisation is run by academics, they do not receive salaries (except for aforementioned editorial expenses, which are declared under SA). They are not running the publication to make money at all, and are having a meeting in the near future to consider registering as a charity. There are never any dividends or anything like that, all funds are retained for investment in the area of interest.

Regarding approach, I have suggested approaching HMRC explaining that the organisation has never traded to make profit, that it has acted in good faith, and providing accounts for the last three years. As a very rough measure, I have been given figures that suggest that the total 'profits' over the last 10 years have been circa £17k., a combination of small surpluses and deficits. I have not verified any of these.

What would others do if in my shoes?

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By Anonymous
10th May 2007 12:33

Any thoughts anyone?

I now have an instruction to prepare accounts/tax returns for the last 4 years, and could do with a second opinion as to the best way to approach HMRC.

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