An illegal trade - tax consequences?
It transpires that a client has been lending money without a licence, for about six years. We knew nothing about this, and since it was apparently in cash and it seems every penny was reinvested rather than spent, there was effectively nothing to pick up on. It started very small and grew.
The situation has come to light after a Customs raid on a completely different matter (!) that turned up the loan books.
A court case is in the process, but we are wondering about the tax consequences.
We are told that the loan business was profitable whilst being carried out, with the loan balances quadrupling in the six years of trading (so around 400% return over six years). However now that the whole matter is out in the open the authorites have told him that as he does not have a licence, will not get a licence, and hasn't the correct loan documentation in place, he is not allowed to try and collect his debts, so virtually everything is lost (profits and initial capital).
HMRC are not aware of any of this yet, or if they are they haven't said anything. There's little doubt that they will become aware we think.
So what plan of action is suggested, and what is the tax situation?
Our understanding is that profits from a trade are taxable, regardless of whether legal or illegal. So what about the loss at the end - is this allowable for tax also?
What's the best way to come clean to HMRC in advance?
- Merging 408 10
- Is there capital gains tax for selling a church? 24 1
- VAT overcharged to customers 371 6
- Merger of Two companies 343 13
- Director Personal Bank Account in company's books 118 4
- Entrepreneurs Relief 75 1
- nic class 1 on expenses mechanics 154 4
- CIC Dividend Cap 293 10
- Form 17 Joint tenancy v tenants in common 169 4
- IHT dilemma 960 16
- Why should I retain membership? 3,409 55
- Merger of Two companies 443 16
- 100% Annual investment allowance on luxury cars 901 21
- Setting up direct debit on Clients bank accounts to collect monthly payments 250 8
- Unemployed Accounting Graduate - Need Advice - Small Firms 666 20
- NEGLIGIBLE VALUE CLAIMS 201 4
- Recommendations for payroll/AE software? 1,807 24
- New business - journal entries 564 24
- IFA incorporation problems 300 4
- Coding Notice 335 7
- Auto enrolment excuses 966
- Feedback on accounts production software for IFRS 740
- Add T&Cs to Sales Order in Sage 427
- Excuses, excuses!!! 320
- Digita Hosted Software 238
- Social investment tax relief 236
- Problems with Sage 50 Payroll v21(2015) pension module 234
- Call Centre Data Costs 224
- How could I be identified for VAT purposes in UK? 206
- Travel costs and contractors 202