going legit after 7 years in the wilderness?

going legit after 7 years in the wilderness?

Didn't find your answer?

Hello everybody, I wonder if you could give me a bit of advice..

I have been working for myself for around seven years now but I have never registered as self employed or declared my earnings to the nice Mr tax man. Due to a recent change in circumstances (my girlfriend is having my baby :-) ) I have decided it is time to bite the bullit and try to make a go of my business officially and so I was wondering if some of you nice folks could give me a bit of advice on what penalties i will incur and basically how much it is going to cost me.

The main reason for not registering before is because I have never really earned that much and I mistakenly took the advice that If my earnings were below the taxable threshold I didnt have to register my business. (yes I know, It was silly! )

I have records of all of my earnings, outgoings and profit dating back to March 2004, It was always my intention to register and declare eventually

april 5 2004 - 2005 profit £2034

april 5 2005 - 2006 profit £3177

april 5 2006 - 2007 profit £2751

april 5 2007 - 2008 profit £4131

april 5 2008 - 2009 profit £4238

april 5 2009 - 2010 profit £5871

Im not sure it is relevant but during this time I have never claimed any income support benefit or recieved any money from the government

Can you please give me any advice on if I should register as self employed and declare the above earning and what might happen next?

is the above taxable?

what penalties will I incur?

will i have to fill out a tax return for each of the above years or just one for all of them?

I am somewhat in the dark here so any and all advice you could give me would be greatly appreciated

thanks guys ;-)

Replies (11)

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By cymraeg_draig
18th Sep 2010 10:21

What have you lived on ...

Your profits are low - not enough to live on. You say you have not received any benefits.  Did you have any other source of income, from a job perhaps?

This makes a difference as it affects you tax liability (and therefore any penalties).

If you didnt have any other income it will reduce your tax liability, but, will clearly lead to a lot of awkward questions by HMRC as they too will wonder what you have lived on.

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By Ji Hao
18th Sep 2010 16:18

Failure to notify chargeability

Hi Anthony

Your position can be summarised as follows:

1. Chargeability to income tax should be notified in writing within 6 months after the tax year end in which the chargeability arises.

2. Where there is no tax liability in the tax year for which you fail to notify the chargeability to HMRC, 'whatever the strict legal position, it has not been our practice, for any year, or accounting period to claim a penalty where there is no net liability to tax or NIC' (HMRC Enquiry Manual 4555)'.

3. There are certain excuses that HMRC may accept as reasonable, but ignorance of the law is definitely not one of them, nor will 'I was told by someone that...' be. Therefore, in your case, you probably don't have a strong case in this regard.

4. A quick comparison of your trading profits & the Peronal Allowances (PA) from 2004/2005 to 2009/2010:

                                     Profit              PA                     

                                       £                    £

2004/2005                2,034                4,745

2005/2006                3,177                4,895

2006/2007                2,751                5,035

2007/2008                4,131                5,225

2008/2009                4,238                6,035

2009/2010                5,871                6,475

It seems that you don't have any tax payable for each year and therefore might not be penalised for failure to notify chargeability.

However, how accurate are your computations of your trading profits? Accounting profits sometimes could be quite different from taxable profits, which may be higher than the former. You may want to seek some help from a professional in your local area. Should your taxable profit exceed the personal allowance in any tax year, then you will have a tax liability in that particular year and HMRC may levy a tax-geared penalty, which is up to 100% of any tax owed and unpaid on 31 January following the tax year end.

Of course, you probably need to prepare to answer the question put forward by cymraeg_draig in his answer - how did you manage to survive with these small profits each year? If you have any other sources of income or capital gains in any particular year (it is almost guaranteed that the taxman will suspect this), they may take your total taxable income above the personal allowances.

Hope that this helps. Good luck!

Ji Hao

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By Anthony694
18th Sep 2010 18:22

thanks

thank you  cymraeg_draig and Ji Hao for your reply and questions

The simple answer is yes I have lived on these earnings...  I have been living in between my brothers house and parents during this time and have paid for my board by doing odd jobs, cleaning, babysitting etc.. The only outgoings I had were if i wanted to go out for a drink or something... everything else was always available to me.

The figures I gave are accurate. I have records of everything I have earned and almost everything I have had to outlay. If anything the figures will be over what I have earned

Again thank you both for taking the time to reply I greatly appreciate it

 

 

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Quack
By Constantly Confused
20th Sep 2010 08:04

You should be ok then

As the previous posters have said HMRC could charge a penalty of up to 100% of your unpaid tax, but as it appears you will not have any tax to pay you should be ok on that front.

HMRC are very likely to ask you detailed questions about your past and how you got by so it might come to you getting declarations signed from family stating they were supporting you, but wait for HMRC to ask.

Just to reiterate, the profits you have calculated are unlikely to be your taxable profits as there is more to taxable profits than what you took less what you spent.  It might be you are a pound or two out or that it is much more (or less!), it would be worth checking to be sure and I think a trip to a local small accountants would be important before you send anything to HMRC.  If your affairs are simple (as it sounds they are) you shouldn't have to pay much and it will potentially save you a lot of hassle later.

HMRC will expect a return for every year you have traded and each is a seperate form which you can download or get from HMRC.  You need the main form (for any savings income you have if any) and the self employed pages for your trade.

 

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By DMGbus
20th Sep 2010 09:00

(1) Class 2 NIC (2) Working Tax Credits

For the 2009/10 tax year you should have paid Class 2 (National Insurance Contributions) NIC. as the profits were over £5,075.

Class 2 NIC for 2009/10 was at a weekly rate of £2.40.  Therefore owing = £124.80.

I can't say what the penalty is as I've not dealt with penalties arising for Class 2 NIC non-payment in the past.

Technically for the earlier years, although the profits are below the Class 2 payment limit there could be a penalty, however it is my understanding that the penalty is not usually levied.

Such a low level of income qualifies you for working tax credits (if enough hours worked) - the bad news is that back-dating is limited, so register immediately now by telephoning 0845 300 3900 and specifically ask for back-dating of your award.

You mention other income - this needs to be computed and adding to the stated profits to see if still below the tax free annual personal allowance.   This other income must be quoted to the Tax Credit Office.

 

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By steve2646
21st Sep 2010 00:54

Are figures accurate

You state “if anything the figures will be over what I have earned”.  This suggests to me that your records are somewhat less than accurate. If you add to this your low level of income if HMRC carry out an enquiry you could be in a spot of bother.

I would suggest that you speak to an accountant before you submit any tax returns.

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By mikewhit
22nd Sep 2010 08:33

Initiatives

Might be worth seeing if HMRC's 'hidden economy advisory group' is planning to propose any amnesties or 'initiatives' for people wishing to 'go legit'. A relatively new Government might announce something in the PBR ...

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By Mister E
22nd Sep 2010 13:38

Class 2 NIC and state pension

I agree with the above, it would be worth speaking to an accountant before doing anything.

Also as no Class 2 NI has been paid you may end up with a shortfall in your NIC record and this may affect your state pension.  You only need 30 years NI contributions now to get 100% state pension so you may be fine, but wrth getting a state pension forecast in the ner future.

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By beverly chester
22nd Sep 2010 16:26

Notify Tax Man

 HI There

I agree with most of the comments. If your figures are correct it is unlikely you will have to pay a penalty although they will almost certainly be charged. You must appeal within the deadline on the basis that earnings are below taxable limits. 

Take heed of what everyone says about going to an accountant, they are not trying to increase your costs (which will be tax deductible anyway) but are concerned for your well being as this type of situation is a gift to HM for a tax investigation. He will almost certainly enquire into your standard of living, lifestyle etc and it is really hard to prove a negative. You must take into account ALL of your varying types of income but even so I suspect you have actually been losing out at you would certainly have qualified for Tax Credits (free money from the Government) on the figures you show. Tax investigations are expensive so be careful who you choose to act for you. A large firm has lots of expertise that you will not need on that level of income but go too small - someone who just does bookkeeping and the odd set of accounts for example - will be less likely to be able to support you well through a tax investigation. Best to go for some qualifications or at least membership of an institute or better still someone who has been recommended as being helpful. You could try tax aid if you are really on that level of income, it is a charity - Helpline 0845 120 3779 - who help out people on low income with tax problems. They will not offer an ongoing service but may help with the arrears and may be able to refer you to someone local.

Are the figures you show as profit the figures BEFORE any personal wages? Do your deductions include an Capital expenditure such as cars or other purchases that are not for customer use. 

ABOVE ALL PLEASE DO NOT LET ANY OF THE COMMENTS PUT YOU OFF DEALING WITH THIS MATTER.  Mr Tax Man will take a far more lenient view if you contact him than they will if they contact you and you could easily get picked up with the current checks that are in the media so sooner rather than later.

Beverly 

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By tltodman
23rd Sep 2010 22:04

What have you lived on?

I took on a client who was "in the system" but had failed to file SA tax returns for the previous 3 years.  As it turned out he'd not worked in that period (had worked for father's business previously, father had died suddenly, lost his job when father's partner had pre-emption rights on father's shares, and then had depression over loss of father and job and had no income at all.  He lived at home and his mother supported him completely.  During this time he married, wife moved in (mother moved into annex) and wife and mother supported him).  Then he started new business and we are back on the straight and narrow.  Anyway, (to get to the point) I submitted the 3 years nil tax returns, putting a note along the lines set out above in the white space and sat and waited for the inevitable.  It never came.

Tracy

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Morph
By kevinringer
24th Sep 2010 14:11

Class 2 NIC and Tax Credits

There used to be a penalty of £100 for late registration for C2NICs – but not anymore. What will happen is that the arrears will be charged at the current rate of NICs – roughly 6.5 years @ £2.40/week = £811. You don’t have to pay C2NICs if your income is below the Small Earnings Exception thresholds which were:

 2004-05 £42152005-06 £43452006-07 £44652007-08 £46352008-09 £48252009-10 £50752010-11 £5075 Every year qualifies except 2009-10. But you have to claim it in advance! So if you’d declared at the time you would have been able to save 5 years = £624. Having said that, I would only recommend someone claims exception if they are paying C1NICs throughout the same year, or have already built up 30 years – but even then they would lose entitlement to incapacity benefit. The biggest loss is tax credits. If you were aged 25+ and working 30+ hours a week then you would have been entitled to payments of: 2004-05 £2215.552005-06 £2281.252006-07 £2350.602007-08 £2437.562008-09 £2540.402009-10 £2668.152010-11 £2715.60 You can still claim – but only backdated 3 months. So if you did qualify, you’ve lost about £15000! So you've been avoiding registering because of an imaginary tax cost - but in fact you could well have lost out big time.

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