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No past records so HMRC claiming big tax bill

Young "entrepreuner "with failed business has not kept proper records

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A young lady is being pursued by HMRC for a £35 k tax bill based on what she had put in tax forms as her expected (hoped for) estimated earnings years ago. In fact her business venture only made losses , but she didn't keep proper records. Now HMRC are pursuing her for £35k in tax based on her estimated earnings. She cannot disprove this as her finances were in such a mess and she had no records. Bankruptcy is an option but isn't there some responsibility on HMRC to see sense .. a failed business with no profits would produce a tax bill of precisely zero unless I am missing something? Is there a way out which doesnt involve bankruptcy?  

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By David Ex
14th Nov 2021 21:36

Concerned Taxpayer wrote:

A young lady is being pursued by HMRC for a £35 k tax bill based on what she had put in tax forms as her expected (hoped for) estimated earnings years ago.

What tax forms did she report estimated earnings on? It’s not something I recall ever having heard of.

Concerned Taxpayer wrote:

In fact her business venture only made losses , but she didn't keep proper records.  

There’s a difference between “proper” records and no records. How do you know that the business only made losses if the records are so inadequate? There must be some trail of correspondence, invoices, bank receipts and payments, etc..

Concerned Taxpayer wrote:

isn't there some responsibility on HMRC to see sense .. a failed business with no profits would produce a tax bill of precisely zero unless I am missing something?  

It’s called self assessment for a reason. I find it very hard to believe that anyone is naive enough to operate a business maintaining no records.

As for blaming HMRC, you should disabuse yourself of that notion immediately. You’ve already told us that they have acted on what information they were given and that, by implication, the necessary tax return(s) were not submitted.

When were the £35,000 demands issued?

Concerned Taxpayer wrote:

Is there a way out which doesnt involve bankruptcy?  

Probably but some accountant will, not unreasonably, require payment to try and sort the problem. Unless you are appropriately qualified and regulated, you shouldn’t be offering advice to the individual - other than to advise that they speak to an accountant as a matter of urgency.

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Replying to David Ex:
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By Paul Crowley
14th Nov 2021 21:44

Agree
This is not HMRC's fault
Client self assessed

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By Paul Crowley
14th Nov 2021 21:39

When did HMRC start writing letters? Has client been head in sand for years?
Recent returns could be ammended
Assumed this is self employment and the tax is income tax and national insurance.
Start point is
Ammend all returns that can be ammended
Then get bank statements
Then prepare reasonable looking accounts
VERY DEFINITELY
Make logic checks on all assets UK and abroad the day before trading and the day trading stopped. Be prepared to justify or explain the submission of rediculous returns
The power is with HMRC. Client self assessed. Difficut to explain estimating high profits, but always making losses
Never kept records could just mean client spent the money as soon as she got it.
I am dealing with one such company now
Maybe consider instructing an accountant

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Replying to Paul Crowley:
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By Concerned Taxpayer
15th Nov 2021 18:08

Has client had head in sand for years?

We are talking vulnerable client.. here so "head in sand" is maybe harsh, but in short yes initially , but also more recently HMRC not engaging.

The (sole trader) business made significant losses from the outset , not due to drawings or anything just rent , rates, specialist workers (not the owner) , adverstising etc but all against a background of low turnover.

Then loans to maintain cashflow etc. A big mess and a lot of debt , not just HMRC. So getting bank statements are difficult due to ever changing and chaotic personal financial arrangements . Frequent changes of address have not helped communications. But yes self employment not Company tax.

Appointing accountant is fine but who would take that on?

My general question is does there not come a point where HMRC realise there is no means for the person to pay them, and probably there was never any big debt to them anyway? The overestimate arises from a very young and quite vulnerable person getting completely out of her depth and as result hopelessly in debt... some of it real but most of the HMRC "debt" is just based on a ridiculous overestimate which she cannot now disprove?

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Replying to Concerned Taxpayer:
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By Paul Crowley
16th Nov 2021 06:19

Head in sand descibed as harsh? Really?
Does this person expect to be treated far better than taxpayers that comply with the rules? No deals are done for the compliant.
If vulnerable and at risk her family or loved ones should have advised her from taking up self employment at all. Self employment is for the self reliant
At what point did she look to take stock and consider profitability, or possibly take professional advice? Would good advice have stopped the losses much sooner?
Has she ever had employment?
You say it is from years ago, but she is still a very young woman.
Her choice really is to make some attempt at compliance and demonstrate that she did make losses or accept what happens
If you are saying that HMRC are not engaging, then remember that they are stating that correspondance has backed up from the start of covid
They are not able to reply to ordinary correspondance within 6 months and often a year for taxpayers making compliant claims for refunds of overpaid tax.
An Appeal by a new client in May 2020 took until June 2021 to get any reply, despite me chasing up every three months. That client had depression issues and had not complied for 5 years
First time on this site that I have defended HMRC, but in this case HMRC have done nothing wrong that you have identified
I have suggested a course of action
Please do not expect me to blame HMRC, they have insufficient numbers of staff who are working from home. All who engage with HMRC are getting a poor service.
The OP does not suggest that she has yet made any viable attempt to help herself
She made bad decisions but now needs to sort the mess out.

You should not be giving insolvency advice

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Replying to Paul Crowley:
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By Paul Crowley
16th Nov 2021 07:09
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By Hugo Fair
14th Nov 2021 23:07

If the only actual question is "isn't there some responsibility on HMRC to see sense?" - then the answer is No (at least not in the sense being suggested as they appear to be acting both logically and within their powers).

My biggest concern is what does the state of the "young lady" have to do with a Concerned Taxpayer (OP's nom-de-plume)? Answer = nothing, unless OP is the self-same lady (age immaterial) or her appointed accountant.

Any other comments from this site are superfluous given the paucity of info provided.
We don't even know the tax jurisdiction, let alone the nature of the 'business venture' or the duration between commencement and cessation of trading.

Even if not guaranteed to be 100% accurate, an attempt to recreate the apparently non-existent books must be feasible ... although the cost & effort of doing so would need to be weighed against simply accepting HMRC's determination.
Having said which, we don't even know the nature of any communications from HMRC - or indeed what deadlines are now running.

The only sane option would be to point the lady at an Accountant (or let her choose one for herself) ... but to do so without any further delay.

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By Calculatorboy
15th Nov 2021 01:39

I avoid these clients

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By SXGuy
15th Nov 2021 08:28

How long ago?

Send a SAR to the bank and see if they produce bank transactions for the period in question.

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By ireallyshouldknowthisbut
15th Nov 2021 09:18

Now if only there was a professional body of persons who could represent you in defending your £35k tax bill who would (a) be able to prepare credible accounts from incomplete records. (b) understand HMRC's rules on paying estimates and making appeals etc.

Cant think which the profession that might be.

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Replying to ireallyshouldknowthisbut:
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By bernard michael
15th Nov 2021 10:08

ireallyshouldknowthisbut wrote:

Now if only there was a professional body of persons who could represent you in defending your £35k tax bill who would (a) be able to prepare credible accounts from incomplete records. (b) understand HMRC's rules on paying estimates and making appeals etc.

Cant think which the profession that might be.

Probably be a charity as she will not want to pay. She must think HMRC are idiots if she thinks that she can get away with the "paucity of paperwork" trick

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Replying to ireallyshouldknowthisbut:
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By bernard michael
15th Nov 2021 10:09

duplicated

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By Jane Wanless
15th Nov 2021 09:28

How is it known that the business made losses?
Are the "losses" due to business expenditure or does the business simply have no money now because of the owner's drawings?
As others have said, some professional advice including a reasonable stab at producing accounts would be a good idea.

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By Justin Bryant
15th Nov 2021 09:49

This could end badly if she has missed any appeal etc. time limits (see previous thread below). You may have to rely on special relief. See: https://www.bailii.org/uk/cases/UKFTT/TC/2015/TC04509.html

https://www.accountingweb.co.uk/any-answers/interesting-case-on-how-hmrc...

See a bad ending here where appeal etc. time limits were missed: https://assets.publishing.service.gov.uk/media/5c73ff16e5274a0ec3c09a50/...

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By Duggimon
15th Nov 2021 10:04

I would presume from the OP (though would prefer it confirmed) that what happened was that the taxpayer registered for Self Assessment herself and included in the estimated earnings question they ask a figure that would give rise to this tax bill.

Since she has subsequently failed to file anything or communicate in any other way, despite having been advised, no doubt, multiple times of her requirement to do so, HMRC have taken the only reasonable step open to them.

I would suggest bank statements and whatever other records she may have available via her email or whatever else would be able to provide a better guess of her actual tax position. She will however, if she's gone and registered several years ago, have penalties to pay at least.

She doesn't have to be able to disprove HMRC's claims if their only evidence is her turnover estimate on her registration for self assessment, provided all the available evidence is reviewed and used to provide a reasonable estimate, HMRC will be unable to prove otherwise. That's assuming that this is what you were referring to in your OP though.

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Replying to Duggimon:
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By Tax Dragon
15th Nov 2021 11:07

There's not much to go on here (as in, the description of what has happened is unrevealing as to what has happened), but she probably now needs to know what to do, or be advised by someone who knows what to do, under tax law.

TMA s30A(4) wrote:

After the notice of any such assessment has been served on the person assessed, the assessment shall not be altered except in accordance with the express provisions of the Taxes Acts.

And see Justin's comment.

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Replying to Tax Dragon:
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By Paul Crowley
15th Nov 2021 12:10

The little we have suggests the figures came from taxpayer estimating her income.
But if it is years ago, failure to file may have resulted in determinations.
Usually determinations get put aside by filing the return

This really sounds like one estimated return and then failure to ammend and to file subsequent returns
Just think about the massive pile of Buff envelopes

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Replying to Paul Crowley:
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By Hugo Fair
15th Nov 2021 13:29

Don't disagree, but we don't even know for certain what the "tax forms" were - so assuming SATR is probably realistic but not guaranteed. Hence my earlier comment that the only certainty was a need for urgent action in appointing an accountant.

BTW, I prefer Buff envelopes to the alternatives (ones with paunches?) :-)

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Replying to Hugo Fair:
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By Paul Crowley
15th Nov 2021 13:50

From the other envelopes

"Bought and paid for"

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By Leywood
15th Nov 2021 16:09

Why do some people always want to pass the buck/blame onto someone/something else?!

Why should HMRC see sense when the this failed entrepreneur took absolutely no responsibility for herself and her tax/business affairs?

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Replying to Leywood:
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By Concerned Taxpayer
15th Nov 2021 18:17

Not really passing the buck here. Just suggesting that if the person cannot afford to pay and will quite possibly go bankrupt, why would HMRC not try and engage with a vulnerable person (and any person in such debt is vulnerable even without anything else going on in their life..)? And come to some arrangement?

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Replying to Concerned Taxpayer:
RLI
By lionofludesch
15th Nov 2021 18:53

Concerned Taxpayer wrote:

Not really passing the buck here. Just suggesting that if the person cannot afford to pay and will quite possibly go bankrupt, why would HMRC not try and engage with a vulnerable person (and any person in such debt is vulnerable even without anything else going on in their life..)? And come to some arrangement?

You can but try.

But making a loss is one thing. Not keeping any records is quite another.

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Replying to Concerned Taxpayer:
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By Leywood
15th Nov 2021 19:13

My response was directly down to your comment ''but isn't there some responsibility on HMRC''.

The responsibility is hers to start with. If HMRC just waved a magic wand because folk are in debt they wouldnt collect taxes from a large percentage of the UK population.

You didnt suggest/seem to hint that this person was trying to engage with HMRC to rectify matters before considering keeping running from her obligations by considering bankruptcy. So is she, or is she still burying her head?

Lets face it now is a good time for her to get her act together and learn that she needs to be more responsible before she gets any further in life, otherwise she will just be in a cycle of burying her head forever.

Ive had extensive experience with people who get themselves into debt, most of whom are spendthrifts and have brought it all on themselves. Not all of them are like that, I hasten to stress, I accept that some are genuinely in need of some assistance. I advocated debt management lessons on here only the other day and am a firm believer in providing such life lessons and have had success at digging a fair few people out of holes they have dug themselves with some tough 'love' type of talking.

I would normally suggest that it would be useful if you consider other posters questions and respond to them, but in this case you could quite easily be stepping into giving advice that you are not authorised to give, so be careful how much you get involved.

She would be unwise to engage with HMRC herself without some representation, so you should merely point her in the direction of the CAB and/or an Accountant who with some effort on her part might actually prevent her from entering bankruptcy, depending on how much effort she wishes to put in to resolve her situation. An Accountant will want their fees up front given her prior behaviour, hence why the CAB should probably be her first port of call. TaxAid may be able to help once the CAB have done their thing. Other than that, unless its family, you shouldnt get involved.

(Your forum name is strangely at odds with your post).

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Replying to Leywood:
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By Concerned Taxpayer
15th Nov 2021 20:37

Thanks the lady is communicating with HMRC, but getting nowhere so bankruptcy is a last resort. AS a concerned taxpayer I would be worried that HMRC ends up with nothing rather than come to an arrangement. Yes CAB and so on are an option but it is frustrating that HMRC do not seem to have a process for this situation.

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Replying to Concerned Taxpayer:
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By Paul Crowley
16th Nov 2021 06:31

Communicating is not really good to describe whether she as acted efficiently
Telephone calls cannot achieve anything.
A letter takes time to get replied to
HMRC have a process called self assessment. Did she engage with that process?
If this is from years ago then HMRC have already been exceptionally tolerant, just like my similar mentioned above.

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By lionofludesch
15th Nov 2021 17:05

I've not much sympathy, I'm afraid.

In my experience, even the thickest of clients knows that records need to be kept.

This taxpayer has ignored all that and reaps the whirlwind.

If only the taxpayer had visited her accountant when the business commenced. Surely there's no excuse that she couldn't afford one - she's declared substantial profits, apparently.

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Replying to lionofludesch:
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By D V Fields
15th Nov 2021 23:09

Agreed. If you ever needed a reason, irrespective of legal requirements, to keep good accounting records this is it. Perhaps it should be used as an example to others.
Dave

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By Paul D Utherone
16th Nov 2021 09:09

She's made a rod for her own back, but maybe try / look at:

- https://taxaid.org.uk/
or
- https://www.litrg.org.uk/

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By bernard michael
16th Nov 2021 09:35

In what way is she vulnerable apart from being "young"??
She's managed to start up a business and incur expenses - to quote the - OP"rent , rates, specialist workers (not the owner) , advertising" No doubt all of them have been paid but not the taxpayers.
Did she pay herself out of the unpaid taxpayers money??
This cri-de-coeur doesn't wash on examination. Who else suffers a loss if she declares bankruptcy I suspect nobody??
In any event she'll be out of bankruptcy in 9 months at most

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Replying to bernard michael:
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By Concerned Taxpayer
16th Nov 2021 18:59

bernard michael wrote:

In what way is she vulnerable apart from being "young"??
She's managed to start up a business and incur expenses - to quote the - OP"rent , rates, specialist workers (not the owner) , advertising" No doubt all of them have been paid but not the taxpayers.
Did she pay herself out of the unpaid taxpayers money??
This cri-de-coeur doesn't wash on examination. Who else suffers a loss if she declares bankruptcy I suspect nobody??
In any event she'll be out of bankruptcy in 9 months at most

There was no tax to pay as there were only heavy losses so no profits. I think you may not have understood the post.

In terms of vulnerability FCA has a definition:

Understanding the nature and scale of characteristics of vulnerabilitythat exist in the firm’s target market and customer base
2.4 Firms should be aware of the many situations and circumstances that may lead to a
consumer in their target market or customer base becoming vulnerable.
2.5 Our def inition of vulnerability refers to customers who, due to their personal
circumstances, are especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care. Firms should think about vulnerability as a spectrum of risk. All customers are at risk of becoming vulnerable and this risk is increased by characteristics of vulnerability related to 4 key drivers.
• Health–health conditions or illnesses that affect ability to carry out day-to-daytasks.
• Life events – life events such as bereavement, job loss or relationship breakdown.
• Resilience–low ability to withstand financial or emotional shocks.
• Capability–low knowledge of financial matters or low confidencein managing
money (financial capability).Low capability in other relevant areas such as literacy, or digital skills.

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Replying to Concerned Taxpayer:
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By bernard michael
17th Nov 2021 08:58

Concerned Taxpayer wrote:

bernard michael wrote:

In what way is she vulnerable apart from being "young"??
She's managed to start up a business and incur expenses - to quote the - OP"rent , rates, specialist workers (not the owner) , advertising" No doubt all of them have been paid but not the taxpayers.
Did she pay herself out of the unpaid taxpayers money??
This cri-de-coeur doesn't wash on examination. Who else suffers a loss if she declares bankruptcy I suspect nobody??
In any event she'll be out of bankruptcy in 9 months at most

There was no tax to pay as there were only heavy losses so no profits. I think you may not have understood the post.

In terms of vulnerability FCA has a definition:

Understanding the nature and scale of characteristics of vulnerabilitythat exist in the firm’s target market and customer base
2.4 Firms should be aware of the many situations and circumstances that may lead to a
consumer in their target market or customer base becoming vulnerable.
2.5 Our def inition of vulnerability refers to customers who, due to their personal
circumstances, are especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care. Firms should think about vulnerability as a spectrum of risk. All customers are at risk of becoming vulnerable and this risk is increased by characteristics of vulnerability related to 4 key drivers.
• Health–health conditions or illnesses that affect ability to carry out day-to-daytasks.
• Life events – life events such as bereavement, job loss or relationship breakdown.
• Resilience–low ability to withstand financial or emotional shocks.
• Capability–low knowledge of financial matters or low confidencein managing
money (financial capability).Low capability in other relevant areas such as literacy, or digital skills.


I don't think I misread the post If she doesn't owe the money why is she contemplating bankruptcy for a disputed debt?? It is more likely HMRC would do it but I doubt it
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Replying to bernard michael:
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By Paul Crowley
17th Nov 2021 10:05

Agree
HMRC do not usually look to start insolvency on personal tax
That is pretty much the reserve of HMRC VAT

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By Paul Crowley
17th Nov 2021 12:38

I did ask if the protagonist had been employed for a reason
The reason is that there could be refunds of tax for the tax year she started and tax year that she ceased
Loss reliefs in year one and the final year are very generous
Get her to have a free initial consultation with a proper accountant
I do not believe that any person cannot make some payment from current income to get professional help
She should have appointed an accountant before trading. He would have pushed her to get in order years ago and would have saved more than he would have cost

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