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How to cut this barber's tax bill...?

A potential new client (a barber shop) has a pretty hair-raising tax liability...

Hi,

All puns aside, I spoke to a potential client recently with a rather horrendous looking SA account.

The story is rather impressive to say the least and I'd be keen to canvass opinion.  Prior to opening his shop in 2015, the client sporadically rented chairs in numerous hairdressers around town and made next to nothing.  At the same time he was also making music and practically slumming it on his brother's sofa, apparently making no contribution. For a period of two or three years (which years those are, he can't be sure; but 'maybe 2010 - 2012-ish'?), he didn't work at all and also didn't claim any form of benefit. He was basically being kept by his brother whilst he made music and tried to cut it - some life, eh?

Basically, HMRC have been chasing him, albeit softly, for years and slapped an estimated tax liability of nearly £5k on his account.  They've never escalated the debt, never enforced it; only sent a letter to remind him of it each year. He's also never argued the debt as he never wished to make an acknowledgement of it.

Anyway, he submitted his first year SA on his own (no income tax due) and paid his NI bill but he is growing rapidily and making a pretty impressive profit for his second year, as well as making plans to expand - hence the reason I am prepared to consider taking him on.

So what do we think - how do I approach HMRC about this debt if it is either A) under six years old or B) over six years old ? Is it possible it could be contested or is it looking more likely that we'd have to come to an arrangement/submit a return for those years? I'm not sure how we actually prove that he wasn't earning anything or claiming anything unless I try and obtain his bank statements.

It's one I've never come across but there is a lot of promise with him as a client so I'd like to try and help him where I can.

Any help appreciated!

Sam

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06th Oct 2017 16:32

My first thoughts is that it's easy to "forget" income earned here and there and bank statements are a must. Even if he didn't bank said income, the bank statements may give some sort of independent indication of his lifestyle at the time.
His entrepreneurial skills now make me wonder whether its true that he really was on his uppers in the past. Maybe HMRC will think the same.

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to Moonbeam
06th Oct 2017 17:51

My first thoughts too were ‘nobody can earn *nothing*’, though he’s adamant he sofa-surfed without claiming or working for all that time (though a pedant would say he never said ‘earning’!)

I’m certainly thinking bank statements and submit returns for the years he’s contesting/denying. Any resistance there is my grounds to just let the lead go in my mind.

Appreciate your time Moonbeam, thanks.

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to HiMyNameIsBert
06th Oct 2017 17:58

Sofa surfing is a thing, is it? What is the world coming to . . .

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to andy.partridge
06th Oct 2017 18:38

It is Andy for skint people. Its several rungs up from sleeping on the street.

It is possibly a true story, it happens. He might equally have been depressed or high on something. But its also possible he was doing a lot of cash in hand stuff and just doesn't want to declare it as it's spent. You cant live on nothing at all, but you can live on less than the personal allowance if you have no rent to pay. Hard but quite possible. After all the dole is less than £60 a week.

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to ireallyshouldknowthisbut
07th Oct 2017 13:48

A few years ago I was engaged to a Turkish lady. She was in the UK at the time, but her visa required her to go back to Turkey every 6 months. The last time, border control refused her re-entry (never got to the bottom of the "why", but c'est la vie), so I did the only thing I could, which was pack up my suitcase and go to Turkey.

After 12 months, the whole shebang fell apart, and I was forced to return to the UK, jobless, homeless, and penniless.

At that point, I learned that sofa surfing is a thing. At least I still had friends and family, but it causes me never to look past the poor guy in the street without that sofa.

Picked myself up, dusted down, and re-built my life. Kudos to the potential client for doing the same.

True story.

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to andy.partridge
06th Oct 2017 20:13

andy.partridge wrote:

Sofa surfing is a thing, is it? What is the world coming to . . .

Personally, I don't think it works. The cushions get too wet.

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to lionofludesch
06th Oct 2017 20:32

I thought it might be a long wait for the tide to come in.

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to andy.partridge
09th Oct 2017 09:36

He lives in the old coal mining village I grew up in and, if I remember rightly, the only tide that ever came in was when the rain came and the slurry gates failed... lovely!

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06th Oct 2017 16:50

"He's also never argued the debt as he never wished to make an acknowledgement of it."

Premonition - you will be back here in a year with, 'he's also never argued his debt TO ME as he never wished to make an acknowledgement of it.'

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to andy.partridge
06th Oct 2017 17:44

I do appreciate the cause for concern Mr Partridge; fortunately I’m an Accountant and prudent! He is well aware that I would be charging him pro-forma and up front for the engagement.

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07th Oct 2017 10:29

If he earned nothing between 2010-12(dates uncertain) and prior to opening his shop in 2015 he rented chairs but he made "next to nothing" I wouldn't be comfortable with that. I would get bank statements see what they tell you about his life style. When he was renting a chair its likely it was all cash so it will be tricky. You've only got his word that he didn't earn anything it is all a bit vague.

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07th Oct 2017 10:33

If you are registered as his agent you should be able to get some information from the HMRC web site as to the age of the debt at least, which could reduce the "maybe" as to the age of the penalty and it's cause

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to bernard michael
09th Oct 2017 09:34

Not registered yet - trying to see out this due dil first before accepting him. I'm hoping he agrees to brandish some bank docs in support of what he says but will offer to help him out with that as I can guarantee that he won't have them if he didn't technically have a home that time ago.

I'm seeing him later on this week though so will see what he says.

Thanks!

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07th Oct 2017 13:43

For out of date years I'd first try for a S.8B withdrawal. If that's successful and with no requirement to submit the estimates should be cancelled.

And if it is successful I'd tell him he's had a close shave.

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to SteLacca
09th Oct 2017 10:03

It's certainly worth a try. I'm hoping to see some bank statements off of him this week to at least give credence to what he says first and then I'll see what I can do from there.

Thanks for the suggestion!

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to SteLacca
09th Oct 2017 10:04

SteLacca wrote:

And if it is successful I'd tell him he's had a close shave.

And bonus points for the pun!

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09th Oct 2017 10:44

The other problem with hairdressers is they are in the cash economy. The bank accounts may only represent a part of the earnings.

My advice is don't accept the challenge

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