How to regularise my tax situation?

NSvengali

In brief:

- Dec 2002: Got made redundant.

- Mid 2003 to End 2003: Took unemployment benefit for 6 months, then stopped signing on. Lied on application form that I had less savings-plus-redundancy money than I had. A dumb move.

- 2003 to 2005. Lived off of savings and redundancy money.

- 2005 to 2009: Self-employed. Started making £1200 max. at peak to £300 min. approx. at worst, per-month. No tax paid on this income.

Now the money's running out and my income has dropped way down and I'd like to settle with the Revenue and get legal again, so I can get a job without hassle (or sign on if it get's really bad).

What's the best way to do this? What penalties can I expect?

Thanks for any suggestions.

stealeruk

I'm not sure I'm reading this right but it looks as though you're saying you claimed benefits when you had savings to live on, is that right? How much redundancy did you get?

And between 2005-2009 you were earning but paid absolutely no tax, is that right too?

PlutoinCapricorn

I think that you are very sensible, not to mention courageous, to decide to clear things up. A covering letter with the figures should be enough to start the ball rolling, there are penalties for late payment of tax, but it depends on the amounts. Have you got a tax office?

I have no experience of this sort of situation, I am not sure if the 6 years (or 5 years 9 months) deadline covers it. JSA is taxable in theory, it depends on how much your total income was: did you get any interest on the savings?

Were you actually registered as self-employed? (I think that I can guess the answer to that one!). Did you invoice your clients? Are there any legitimate expenses that could be used to reduce your profit?

Have you got the figures for all of the tax years, and paper records e.g. bank statements? Have you got details of the personal allowances for these years, so that you could estimate the tax due?

PlutoinCapricorn

Citizens Advice are there, they are free and exist to help with such situations. Why not give them a try ..

NSvengali

stealeruk wrote: »

I'm not sure I'm reading this right but it looks as though you're saying you claimed benefits when you had savings to live on, is that right? How much redundancy did you get?

Yes. And £11K redundancy + £20K savings.

stealeruk wrote: »

And between 2005-2009 you were earning but paid absolutely no tax, is that right too?

Yes.

NSvengali

PlutoinCapricorn wrote: »

I think that you are very sensible, not to mention courageous, to decide to clear things up. A covering letter with the figures should be enough to start the ball rolling, there are penalties for late payment of tax, but it depends on the amounts. Have you got a tax office?

I don't know.

PlutoinCapricorn wrote: »

I have no experience of this sort of situation, I am not sure if the 6 years (or 5 years 9 months) deadline covers it. JSA is taxable in theory, it depends on how much your total income was: did you get any interest on the savings?

Yes.

PlutoinCapricorn wrote: »

Were you actually registered as self-employed? (I think that I can guess the answer to that one!). Did you invoice your clients? Are there any legitimate expenses that could be used to reduce your profit?

No. No invoices to clients. My income sources were from three companies only. paid automatically. Two were foreign-registered companies.

PlutoinCapricorn wrote: »

Have you got the figures for all of the tax years, and paper records e.g. bank statements? Have you got details of the personal allowances for these years, so that you could estimate the tax due?

I have bank statements, I think. I don't know what 'personal allowances' means in this case.

PlutoinCapricorn

Well, perhaps you had better take this one step at a time, and do all the research and preparation first.

I have heard that it is a big point in your favour if you approach HMRC yourself, rather than being discovered or 'shopped'. If you supply them with all the info, it will save them time so this might reduce the penalties.
You will need to pay all tax owed to them, interest and penalties. If they sense that there are huge amounts at stake, they may do a much more thorough investigation than they would for a few hundred.

The tax year runs from April 6th to April 5th. You say that you were made redundant in 2002: was this before or after April 6th? Obviously if you want information you need to give details of your affairs: were you a salaried employee on PAYE for the entire time before April 2002? You need to know how many tax years are involved. Did you get wage slips, P60s and a P45 when you left?

For each tax year, you get a Personal Allowance. This is the amount of money that you can earn before you start paying tax. It increases each year, it was £4,615 for FY 2002/03, it is now £6,475. The tax rates and bands change a lot too, so if you want to know how much you owe you will need the all the figures for each year, which are on the Citizens Advice website.

PlutoinCapricorn

Sorry, I see that you were made redundant at the end of 2002. Were you 'legal' up to that point?

I guess that approaching your nearest tax office is your best bet, if you have never had one.

I am thinking that perhaps it is best to let HMRC sort it out, unless you want to go into it yourself, give yourself a crash course on how to calculate tax and get an estimate in advance yourself. Citizens Advice are a compromise: you can make appointments to see someone. They get grants from various companies to help people with their financial affairs, on the grounds that these companies benefit if people can manage their finances.

PlutoinCapricorn

I have had a few more thoughts:

I am sure that a professional accountant would love to sort everything out - for a price. You can get free initial consultations.

Do you know what your National Insurance number is?

It is unlikely that you need to pay tax for the years when you were living on your savings and a bit of JSA: savings are not taxable and your Personal Allowance would cover the JSA. In fact, as interest is paid net of tax, you may be owed some money!

When you were made redundant, you would have been given a P45. I expect that you gave it to the Jobcentre, and when you stopped claiming they gave you another P45. This would normally be given to your new employer, but as you did not have one, I would expect HMRC to pick this up and write to you - each April! Did you get any such letters?

Your 3 companies and irregular amounts are acceptable for self employment. Really you should have registered in 2005. If you registered now, and told them when from, I am not sure what would happen, but it is one way of getting back into the system. You would need to think of a good reason, but if they did accept this you might be able to offset some expenses against the income. There would be a penalty for late registration of course, and it might bring the troops down on you.

fengirl_2

Some straightforward advice:
You have failed to notify HMRC that you were self employed. That incurs a £100 penalty.
You have been self employed for 4 years, earning enough in profits to make you liable to tax. You have incurred a penalty of up to 100% of the tax lost, plus interest.
You need the help of a proper accountant or tax advisor, first of all to put together some income and expenditure statements and secondly to negotiate with HMRC over the penalty situation.

NSvengali

Thank you for your replies. They've given me food for thought.