We have been approached by a Self Employed person who has been operating for around 4 years. They have never notified HMRC, never completed a Tax Return, never paid any tax etc etc. What is the best way to handle this. Simply notify HMRC, complete back-dated Returns and take any punishment on the chin? HMRC nor any other Government body have ever made any attempts to contact this person.
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Yeah - Front Up
There's a couple of tweaks but basically, yes, come clean is the answer. I would say that you should (a) make sure you get paid as you go or in advance because there will be some nasty demands and you want to get paid before the Revenue and (b) I'd do the work preliminaries before telling the Revenue. It wouldn't do for things to get stroppy quickly and be confronted with demands before they are in a position to provide what's going to be required.
Lucky dip as to what happens. Small liabilities or NIL ones for early years and you just might get away with interest and probably surcharges. But penalties could be levied according to circs.
It also depends upon the total amount due
If after you've worked out all of the previous years tax bills you are talking about relatively small numbers, perhaps £5,000 or so, then simply undertake the filing of the returns with a formal letter and explanation to your clients tax office.
If the sums are significantly greater than this then it may be worth discussing this with a specialist to negotiate a settlement as the potential to reduce penalties may be worth the cost of the additional advice.
You should send a cheque for any tax due with the returns as it seems to mollify HMRC when it comes to any penalties
31 January?
In a case such as this, involving a failure to declare income over several years, is there any great benefit in getting some information in to HMRC by 31 January to minimise penalties?
RM
31st January Deadline
In a case such as this, involving a failure to declare income over several years, is there any great benefit in getting some information in to HMRC by 31 January to minimise penalties?
Any advantage of partial disclosure would be very marginal.
Much better to take the time required to ensure (as far as you can with your client) the fullest possible disclosure with the necessary documentation such as bank statements, invoices, receipts to back this up.
HMRC are more concerned about the completeness of a disclosure than its timeliness, particularly when this goes back over a number of years.
My main concern about a partial disclosure would be HMRC issuing very high assessments for years that have not yet been reported which then have to be challenged by yourself and the client.
If you've done all of the paperwork any attempt at raising unjustified assessments can be easily challenged.
Bit of Advice
When you do send the accounts in, make sure that if you have used any estimates that you also tell the Revenue, and what your based them on.
They get a little upset if they think that all you figures are based on fact, and subsequently they find out that you used 'guesstimates'.
One other thing, it might be worthwhile going by yourself to the Revenue for a 'quick chat' to find out how the land lies, so you can 'prep' your client for that nerve-wracking (both for yourself and the client) meeting. Also, it allows you see who the opposition beforehand, and thus control the situation to block any 'nasties' that might arise.
Also, as mentioned, make sure you get something up-front from the client, because sometimes these things can drag on, which costs you lots of time and money.
Years Self Employed!
If you haven't already done so, ask the individual the reason(s) why he has decided to front up after 4 years. The underlying reason might colour your decision on how to handle it, if at all!
Out of the woodwork
In my experience clients who claim they want to get back on the straight and narrow often change their mind when they realise they will be asked questions, expected to provide information and part with money.
Make sure you get a substantial sum up-front or at least get a standing order in place.
Also be prepared for HMRC to say that the returns you are filing are out of date and not give any advice on how they want you to advise them that your client has taxable income which he wishes to declare for those years.
This job will call for biscuits!
Property income disclosure
I have a client who has had rental property for about 5 years and not disclosed any of it on his returns, what does everyone think is the best way forward.
I feel its best to complete everything so there is a good picture of events and include the relevant years information in this years return and deal with the historic stuff later?
His wife has been involved with the property so 50% applies to each but she hasn't completed any returns at all?
Thanks Wilts
Similar here
I'm trying to help a friend of mine who wants to register as self-employed as her photography "business" is starting to pick up. Up to now she's pulled in maybe £100/month on average from online print sales from her hobby but wants to start in business "proper" and advertise her services. This would be initially part-time with her normal mundane dayjob but with a view to making it a fulltime business.
However she is very put off from talking to an accountant because as suggested by some of the views/responses in this thread she's afraid of a need for disclosure and the potential for fines over what has been loss making to date but still generated some "turnover". Her concern over this attitude means in turn that I'm concerned she's more likely to just keep things as they are and not even register - though she wants to be legit.
I've suggested that maybe the route she should consider is to start a company (a new entity) for all future business and "forget" her past - though I'm no accountant simply run my own little ltd co. I don't want to ask my own accountant for advice over fear of them having an obligation to disclose this to HMRC!
SpikeyJ
Hobby
I would recommend your friend talk to an accountant and agree a start date. If anything she has lost out by not claiming equipment. She should not have the problems of the original questioner as hobby businesses have there own rules where the money is reasonable ie quite low. Can't see any need for her to worry or to start a company just to get out if it
TMA 1970 Part 2 Section 7 comes to the rescue.
Thanks to https://www.accountingweb.co.uk/anyanswers/when-does-hobby-become-business#comment-408556 I can see that there is no requirement to file where there is no profit. Yes I understand that we need to be able to show there is no profit (and indeed be sure that was indeed the case!) and so I'll take that as the next steps. As for "claiming" for equipment I believe there is about 6-years we can play with, and will effectively have "claimed" much of that through non-filing. It certainly hasn't been anywhere near enough "work" to count as a self-employment (even if it was a second employment) so for now I feel more comfortable with her situation.
Thanks for the input peeps,
SpikeyJ
Spikey when did the business start
The first thing to look at is did she make a profit or not after deducting asll her relevant expenses
Thanks Bern,
Difficult to quantify, again one of the problems of how far back to declare, but probably about 2-3 years ago and after costs of equipment & other expenses (but not a lot of receipts as she wasn't "in business" simply "making a few bob from a hobby") certainly no profit - hence the anxiousness about the potential for fines when there was in effect no actual profit. My thinking also goes along the lines of "sell your private equipment to the new company at a reasonable second hand value" and start from there. At least there'd be a clean starting point and the past is the past (as it is for many many people whether casually ebaying stuff they've bought at car boots, selling sweaters they've knitted or "scrap booking cards" they've hand crafted, be that to frineds at work, car boot stalls or ebay/etsy.
SpikeyJ
How should this be approached?
As they said in a former episode of Dad's Army (possibly before your time) when the church was occupied by Germans 'We shall have to handle this very carefully'.
First make sure your potential client understands that there will certainly be fines involved, but you will do your utmost to mitigate these. A straightforward fear of filing ( is there yet a word for this? I could suggest 'muriphobia') could be accepted if it sounds plausible and you get a decent inspector. However, stress on your client that every minute detail must be disclosed.
On the other hand, if non registering has been deliberate, and it is the fear of discovery by one of HMRC investigative teams that prompted this change of heart, tell your client to expect a fairly rough ride, though not as rough as it would have been if this move had not been made.
To simply close up shop and start afresh is not an option as your client will be required, when registering, if he has been in business before, and to declare 'No' is not a wise move as this could later be found to be a lie.
As to your fees; State your hourly rate to your client; advise him that he will be invoiced weekly, and if not paid within one week of issue of invoice, all work will cease. Do not take standing orders as these can, and often are, cancelled. Similarly do not take cheques which can also be cancelled. If I am offered a cheque where there may be some doubt, as in this case, I ask my client if h has a cheque or debit card. If he says Yes, I tell him there is a bank close to my premises where he can either cash a cheque or get cash from the ATM. When I get the cash I receipt their invoice which negates the response 'So you are just going to pocket the money yourself'
I also have it stated on the contract I give to all clients that returns will not be filed until ALL outstanding fees are settled.
As a final word, I would comment at the number of people, presumably accountants, who seem to be condoning non registration and forgetting past actions.
HMRC makes it perfectly clear in its letters, adverts and on its web sites that a return MUST be made if any transactions have taken place whether a profit has been made or not. Also filing must be made if a return is due whether a return has been received or not,
HMRC raised over a billion pounds in penalties for late filing in 2012, some from people who forgot to file, were unsure how to file. but I suspect mainly from those who deliberately did not file.
Lets not start classifying real fears as irrational ones...
A straightforward fear of filing ( is there yet a word for this? I could suggest 'muriphobia') could be accepted if it sounds plausible and you get a decent inspector.
Muriphobia is a fear of mice.
Late filers
For your info I have done a few properties where I have agreed that I will just put the brought forward losses on the first return needed. Provide them with accounts showing the losses etc and just pay tax from the first tax year needed. It has not led to penalties yet and gets them out of say 5 tax returns to only 1 or 2 as most properties made losses until a year ago if they had a mortgage. It's worth a try as there is no loss to the revenue and they are on the system now!!!
Nobody has mentioned any of HMRC's campaigns for voluntary disclosure and getting tax affairs up to date aimed at various targetted business types e.g. the Plumbers' Tax Safe Plan (PTSP) and the Electricians Tax Safe Plan (ETSP) .
If the potential client is involved in one of the the areas for which the voluntary disclosure etc. is no longer possible it is likely that HMRC will take a much dimmer view of matters.
Notwithstanding, the poential client should be encouraged to do the correct things and be prepared for a rough ride and some penalties.
OMG
Do you allow Tax Inspectors to "give your clients (and probably yourself) a rough ride? They are tax collectors, not the gestapo. G Brown tried to give them spiky hats and big boots and to make them bullies. Where does their income come from. Learn this for the bullying types - Who the hell do you think YOU are? After that, conversations usually return to reality. WE are not their Customers - we actually own the shop!
Why?
Dosent hmrc put more resources into finding these people who don't submit returns, everywhere I go I see examples or people Working as employees without their bosses paying paye. I feel bad fr the rest of us paying tax and sort of bad for the people avoiding it especially when it's workers who aren't all that knowledgable . Forget google and star bucks, .
A bit harsh?
"As a final word, I would comment at the number of people, presumably accountants, who seem to be condoning non registration and forgetting past actions."
Apart from one non-accountant looking for advice where there are no profits, I don't think there is anybody on this thread suggesting this.