Very Worried

tesuhoha

I wonder if someone can answer this question for me. My husband is self employed and worked for a contractor last year who was deducting his tax at source. He was a small one man business and being in the building trade he started to go under and my husband ended up working for him for about 8 weeks unpaid. It was a catch-22 situation in that he kept hoping to get paid and when he did the cheque bounced and then the amount he was owed was even more so he didnt want to leave in case he lost out. Anyway, finally his employer paid him a lump sum of cash which was nowhere near what he was owed but we paid it into the bank because we had to pay the mortgage somehow. At this point he left the contractor to look for another job. We are now left struggling with a largish debt which we wouldn't have if he had been paid during that period plus the unemployed period with no benefits as he is self employed.

However that is besides the point. What really worries me is that all the money my husband was paid was deducted at source and I don't know whether the contractor was actually paying this money as tax. The small lump sum that he got will have to be declared and I am especially worried about that as I am sure he wouldnt have paid the tax for us although it was deducted. What I need to know is, are we liable for this money even though we were never paid it or is the contractor? I am frightened to ask the tax office anything as I do not want to bring it to their attention. Our taxes are all up to date and paid to date as we always have to pay extra anyway, and our accounts are up to date with the end of year assessment sent in by our accountant.

tesuhoha

All this will go into next year's accounts that have not been done yet.

Cook_County

I am confused. You say that your husband is self-employed but also had an employer.

You also have accounts receivable but are apparently preparing your tax accounts on a cash basis, ignoring bad debts. Why?

I would ask your accountant what he or she does on the tax return with your cash basis book-keeping.

fengirl_2

I assume that tax was deducted under the CIS scheme. Does your husband have CIS certificates detailing the tax deducted - and does he have one for the final cash payment? If so, then HMRC would persue the contractor for the tax.

Treading_Water

tesuhoha wrote: »

What really worries me is that all the money my husband was paid was deducted at source and I don't know whether the contractor was actually paying this money as tax. The contractor should have supplied your husband with a statement of Payments and deductions. The small lump sum that he got will have to be declared and I am especially worried about that as I am sure he wouldnt have paid the tax for us although it was deducted. What I need to know is, are we liable for this money even though we were never paid it or is the contractor? You can't be liable to pay tax on money you've never been paid. Basically it becomes a bad debt and you won't have any tax to pay on it until/unless you receive it. I am frightened to ask the tax office anything as I do not want to bring it to their attention. Our taxes are all up to date and paid to date as we always have to pay extra anyway, and our accounts are up to date with the end of year assessment sent in by our accountant. I would speak to the tax office - it won't be you that gets into trouble, but the contractor - especially if he has been deducting under CIS, but not declaring and paying it to the tax office.

You need to be careful with your terminology - you talk about your husband being Self employed and in the next sentence talk about his employer. You also need to consider taking him to court for the debt. If your husband hasn't already he should consider sending him either an invoice or a reminder statement, so he has something on record.

tesuhoha

Thanks everyone. He is not an employer but a contractor. I should not call him that you are right. Treading Water you have put my mind at rest, that is what I wanted to know. We are not ignoring the bad debt (but the tax question was my current concern) and we did not volunteer to be working on a cash basis, it was just what we were given and had no choice about it; it was cash or nothing.

We used to have CIS vouchers until the system stopped and we have not had any paperwork from him since then. We have only the proof of the cheques he paid us and the last cash payment we cannot prove was from him but we will have to ask him to provide a statement before I submit the accounts to the accountant.

Treading_Water

Unfortunately you may now be faced with 1 or 2 scenarios.
Either he has paid over the tax deducted and can supply you with the Payment statement or, he has used it as an excuse to underpay your husband who may now be liable to pay further tax on the amount he has received.
You will need to take the matter up with either your accountant, or HM R & C.