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Where to start on three years non-filing?

Family friend (ostrich), non-filing of S/A, several years lost records

I've been asked by a family friend to help him out of a tricky situation - he's a tradesman/handyman and has three years of tax returns to complete.  14/15 records went to accountant as normal in late 2015, accountant was arrested and imprisoned for fraud.  Tax return was not completed and records not returned. Said accountant now deceased - efforts to recover records futile - penalties issued for non-filing, etc etc etc.

The guy then went to one of these "business support" people who took a nice load of money (cash!) up front and promised to sort the mess and do the 14/15 and 15/16 returns. After the friend received further letters for non-filing of 15/16 accounts, the 'business support' became unresponsive to correspondence and appears to have disappeared off the face of the earth. Some googling and Companies House snooping reveals an interesting collection of dissolved entities and the current business accounts overdue by 9 months - fairly safe to assume this one has gone too.

So we're faced with three years of tax returns to do, with no records for the first two - there's cash involved and most of the sales were hand-written carbon-books, some emails and some text messages!!!  Bank statements obviously will be obtainable as will some purchase history from the trade suppliers, but sales are going to be tricky to estimate with any level of accuracy.  Looking at previous years, net profits have been around the 10-15k mark.  I'm really just after some Accounting Web advice on where to start? My instinct is to write to HMRC, try to put down as much in order as what happened and tell them that someone is now dealing with it and the returns will get done as soon as its possible to make decent estimates.  I've never had to do anything like this before, only dealt with simple tax returns - I want to help him out if I can and try to get some of the penalties to go away if possible - it's an interesting and almost unbelievable set of circumstances, unless you know the guy - he's extremely trusting of people and a complete 'Numerophobe'.  Debt Management are chasing him for a tidy sum worth of penalties - I've not seen all the letters yet, stuff is coming through piecemeal, so not sure on a total , but it's four figures.

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18th Jan 2018 06:23

Hi there,

I'd completely agree that the bank statements is the best place to start. I think in these circumstances all you can do is go off them, and then try to estimate cash income as best you can.

Ultimately if you are able to recapture all the purchases info I think the most appropriate way to do it is analyse them, and then estimate cash sales. If your friends profit is the roughly the same as previous years then you can only estimate cash sales in order to give a similar profit again.

With respect to appealing fines, HMRC will not accept appeals until the tax returns are complete. I would suggest getting the returns completed ASAP, then get the tax paid straight after in order to show that your friends intentions towards taxes going forward are good. This may help you with any appeal.

With respect to choosing rogue advisers. Without trying to throw the book at you, I don't think HMRC will accept this as a valid response (they certainly haven't whenever I've taken a client on who has suffered the same).

It's not HMRC's fault that your friend has chosen that adviser.

What in theory should happen is, your friend should seek legal redress from the accountants/advisers he's used. I appreciate in this case that it's unlikely that this is possible.

All I can suggest is that going forward, if your friend doesn't use you to help him, he needs to find a credible accountant who is registered with an accounting body. He'd always have a comeback then.

I hope this helps

Regards,

John

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18th Jan 2018 09:46

I would prepare and submit the 2016-17 return ASAP (before 31/01/18) to stop any additional penalties. This will have the added advantage of allowing you to experience the type of information you should be looking for in the earlier years.
I assume the client has a copy of the 2013/14 years accounts - so there'e the starting point .
Both the above will give you points in time for income streams. Then trawl through the bank statements for as much else as they reveal
Don't forget the return has an information box for estimated figures to be disclosed - you may have to use that.
Good luck - you'll need it !!

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19th Jan 2018 14:19

Does your friend have any diaries or calendars he has written on to show what jobs he was doing or who he was going to see? This may help with estimating cash income.

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