A problem friend..

thechippy

Hi all,

I wonder if you can give me some advice here.
I’ll try to be as brief as possible.

I have a good mate who I’ve known for 30 years who is self employed.
Now, he rang me the other night worried sick because he’s carried out his tax calculation for 07/08 and it came out around £6000. He is very short of work at the moment, has no savings and nothing available on credit cards. I advised him to get an accountant to check, as his calcs may be wrong.

Anyway, he had a friend of his round last night (who is meant to be quite clever with theses things) who done some rather creative accounting for him!

This is mainly memory, but this is what the guy done.

1. Put his wife in as being paid £220 per month for admin work
2. Is getting him to send an invoice to (another mate) for £2300 which will not be paid and put down as a bad debt
3. Put down £200 per month for van hire for 4 months (which never happened)
4. And quite simply added about £3000 something to the cost of sales.
….other stuff I can’t remember!

Basically they have knocked about £5000 off the taxable income!

The trouble is, he can’t prove any of it. I asked him how he could show payments to his wife, bills for van hire, payment for van hire and invoices to show the £3k added to his cos. He has nothing that can show these were actually paid - because they weren’t.

He’s confident he’ll be ok as this return looks sensible in relation to his last two, so why should it be questioned?

The only glimmer of hope is that he hasn’t filed it yet. I need to give him a good nagging as surely this is fraud.

What are the implications of this? What can I say to him to just submit and honest return? I’d just rather worry about paying the money rather than worry about getting caught, but he’s not listening.

Thanks

Sam1903

implications I would think would be fraud
Why doesnt he just rang his local tax office ask for advise stating his bills seems higher than normal especially with a slump in sales and see if they can check it for him
If he is caught which i would suspect he would be it would not be good
Not an accountant but i think that tax can be assessed back seven years so he would be looking over his shoulder so the next seven years.

thechippy

samdmumford wrote: »

implications I would think would be fraud
Why doesnt he just rang his local tax office ask for advise stating his bills seems higher than normal especially with a slump in sales and see if they can check it for him
If he is caught which i would suspect he would be it would not be good
Not an accountant but i think that tax can be assessed back seven years so he would be looking over his shoulder so the next seven years.

I think his figures were about correct, that's why he was worried and gone that route...:eek:

Sam1903

getting himself in even deeper wont help he should approach tax office and state due to credit crunch simply doeasnt have the funds and agree a repayment plan with them, better than doing time for fraud

orangeslimes

yeh thats fraud. also if he was paying his wife a wage he would have had to register that and pay NI contributions etc... He should probably find himself an accountant and see if he has miscalculated/not claimed something he could have (that exists)

GPedro

Big risk IMO. Worse tax fraud occurs every day, and sometimes the offenders don't get caught. They often get away with a fortune, but a couple of grand just isn't worth the risk, if you ask me.

Voyager2002

The van hire would be so easy for them to check. They might be interested to see if the hire company was cheating, and so ask for details.

chriiiiiiiis

Because he's submitted his return late, they have a longer enquiry window.
He'll also have £100 penalty.

He needs to check his calculation thoroughly to see if it's correct before emersing himself into tax evasion.

If he does submit it knowing it's false, I hope they open an enquiry.

Lentilsforteaagain

As boring as it sounds, honesty really is the best policy ... why doesn't he just phone the local tax office and admit he's having trouble? Sounds like far less hassle and far fewer sleepless nights to me ..

ukric

ooooh where to start.

Ok evasion side of things first.

All very well his so-called mate saying basically "yeah evade like there's no tomorrow" It isn't him that it'll come back on if there is an enquiry.

If there is an enquiry then he's bound to get found out, first thing they'll do is ask for things like bank statements, books etc to prove all that expenditure. Not to mention they'll be able to check their own records to see if he registered as an employer for the wifes 'wages' before asking him for anything.

If he's not seen the new penalties brought in for this year perhaps he should have a look, up to 100% penalties for knowingly providing false information which results in a loss of revenue.

All in all noooooooo don't do it!

Ok, on to what he should do.

1) Phone HMRC and ask for help checking that all the info is correct (Did he work under CIS and forget to enter the tax deducted etc)

2) Is the 6000 including his first payment on account? If it is and he isn't doing as well this year as last year he can ask HMRC to reduce his payments on account so he's not paying more than he needs to. (if this is the case he will need to provide the figure to reduce to, but be careful not to reduce further than would reflect the actual tax liability for 08/09)

3) If he does owe the money and can't pay it all at once call HMRC (once the rtn is correct and submitted) and try to arrange a payment plan.


Hope you convince him

Elaine_Wilson

Perhaps he is underestimating the likelihood of being caught? A few things to mention to him.

The Revenue are narrowing the criteria used by the computer to flag up possible enquiry cases. If the computer selected returns where a figure had changed by 20% last year they may well use a figure of 10% now.

The wife's salary is probably the safest adjustment. If he can justify paying the salary then proof of the actual payment may not be demanded if nothing else is found wrong with his return. But the fact he didn't claim last year may trigger questions.

I can't see how number 2 gains anything. Surely the turnover would need to be increased as well?

Van hire is definitely risky. Most hire companies will require a deposit paid by credit card.

Funnily enough the additions to cost of sales is least likely to be picked up if the final figures are comparable with the previous years. But he'll have to have a good story for this if an enquiry is opened. If he claims that he spent it in cash can he demonstrate that enough cash was available.

What would worry me most is that the tax return is only part of the information used to pick up on fraud. If those adjustments leave the return comparable with the previous year then it would seem he had a good year with an increased profit of more than £5,000. Why doesn't he use this to pay the tax? Oh, I suppose he has spent it. But on what? Foreign holiday? New car? If it can be traced then the risk of discovery increases.

I agree with the other respondents. Too risky.