Hi everyone,
I have someone (a subcontractor) who has not done a tax return for around 4 years. He's a young lad who thought he was an employee but was led by the hand by his contractor down a murky path. It's his own fault of course but still....
Anyway, what chance has he got in trying to reduce penalties? He has the standard £100 penalty per return which I have told him he has no chance in reducing. However, for every single return he also has a second late penalty of £100. Is there any chance he can reduce these? Also, what if he was registered as self-employed for the first year but during that year was actually on PAYE? Obviously he still has a return to do but does it make any difference?
Please be gentle - I am not acting in the capacity of a full advisor here just keen to learn more and help a friend out.
Cheers,
Mark.
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Reducing penalties
The first thing is to actually get the returns filed.
It's not correct to say that he has no chance of reducing the initial penalties of £100. Under the rules applying to those years, the penalties cannot exceed the amount of tax that was unpaid at the 31 January filing date.
It doesn't matter if he was PAYE or self employed for any given year - if the return is issued then it must be completed. Of course with PAYE there is a greater chance that the tax will have been fully paid so there is no penalty.
Was the taxpayer in construction? If so the contractor should have deducted 20% or 30% tax and there is then usually a refund - that means no penalty.
If not in construction then no tax will have been deducted so there may well be tax due, depending on total income. In that case the penalties will stick, and there may be interest and surcharges on the late paid tax.
The other big question is that of whether he was genuinely self employed as a contractor or if her was really an employee. If that can be shown then the whole liability for tax falls on the "employer" for not operating PAYE. Even if he was self employed (and that's probably unlikely) I think that he may well have a claim for holiday pay, as the Working Time Regulations apply to "workers" and not just to employees.
I agree
...and if I may say so, it is an excellent comprehensive answer from cloudcounter.
I would just add a caution about "helping a friend out". If you are an accountant, you should do the job in a full professional way. If you are not, you would help your friend most by advising him to consult an accountant.