A friend is in trouble...

mysteryfriend

A friend of mine drunkenly revealed a financial secret tonight, and I want to help him.

He's 26, single and rents a room from a friend. He's self-employed, but for the past 2 1/2 years has not been paying tax on his earnings. He is VAT registered, but also never invoiced for it and therefore never got the extra earnings to help pay for the tax.

Essentially, through ignorance and sticking his head in the sand, he now has £28,000 of debt. The taxman has noticed and is sending letters and calling. He's responded to this by never opening post and ignoring all the letters and calls.

What should he do now? I've no idea really where to start to help, especially when he doesn't want to open up about it...

WhiteHorse

He needs a good accountant, and quickly.

debtinfo

Yep first he needs to find out what his liability is and that means filling in his tax forms and getting an accountant to help him

mysteryfriend

WhiteHorse wrote: »

He needs a good accountant, and quickly.

And will this accountant cost a fair wad of money that will then add to his debt? And as a side question, how could he pay the accountant when he is £28k in debt?

debtinfo

The problem is this, if you dont file tax returns, HMRC are allowed to estimate your tax, for some reason this estimation is nearly always on the higher side and this estimations is then allowed to be used as evidence in any subsequent bankruptcy petition or other measures

lemon1

I feel his pain. I did pretty much the same thing for a few more pounds, the stress he's under will be enormous and he'll be feeling pretty frightened (and stupid) right now... I'm glad he's told you but he will have to grow some balls and sort this out himself- only he can... point him in the direction of business debt line as his first point of call.

Burying his head in the sand will not make it go away, I understand how easily it's done, you get to a point where it's too frightening to even open letters anymore and when you're self employed tax and VAT are bills that even though you are fully aware of the consequences of not paying it, get shoved to the bottom of the pile when you're just trying to pay for supplies to keep trading in order to make enough dollar to keep a roof over your head, there's always that little glimmer of false hope "it's going to get busier and I'll pay it all back" then there's the pride thing too... but you know what they say about that and falls...

HMRC don't mess about, the worst thing you can do is ignore them. He needs some breathing space to sort his !!!!!! out, it will be one hard phone call he has to make but he has to make contact with them and tell them he's trying to sort it out, I got about a months space to get all my books together and work out exactly what I owed them before trying to negotiate a payment plan with them (they politely declined :rotfl:)

I wish I could speak to him, I would tell him how bloody scary it is making those first few phone calls but how EMPOWERING it was finally facing and sorting out the mess I'd got myself into. I declared myself BR in the end (after lots of fantastic advice from BDL), I wanted to control the situation and decide when I was going to go BR not HMRC so did it 6 weeks after closing down my business.

Good luck, he'll need a good friend around, this is going to be one hell of a rollercoaster ride and he'll need a hand to hold onto.....

andyf1980

That's really good advice lemon1.

Taking that first step is beyond scary. Not sure about others but I've found the reality to be much less scary than I thought it would be. Yes things aren't always pleasant but I definitely feel better now I've stopped burying my head in the sand.

tigerfeet2006

As Lemon says get him to ring Business Debtline and then the HMRC.

If you have any questions then there are people on this board who have been made BR by HMRC and will be able to answer them.

WhiteHorse

mysteryfriend wrote: »

And will this accountant cost a fair wad of money that will then add to his debt? And as a side question, how could he pay the accountant when he is £28k in debt?

Then HMRC will do his accountancy for him. And that will really hurt.

On the other hand, a really sharp accountant may well be able to negotiate a deal with HMRC, but they will only consider it if he has proper accounts made up.

mysteryfriend

Hi all,

Thanks for the advice!

1. I have investigated the company my friend has, and it was dissolved in 2009. Does this mean that all debts were settled? Or can it be dissolved despite owing the HMRC money?

2. He has said that he can just but his company bankrupt (not sure if that's possible if its dissolved?!). Are there really no monetary implications to this?

Flyright

I don't quite follow. Did your friend have a limited company of which he was/is a director? And exactly what have HMRC raised their estimates for; tax on him as a self-employed person, PAYE on his limited company, VAT on him as a self-employed person or VAT on his limited company, or corporation tax on the limited company?

When you say the company is dissolved do you mean that it's shown as dissolved on the company register or that it's simply ceased to trade?

Clarifying this is important as if HMRC's debt has been raised against your friend as a self-emplyed individual then they are likely to pursue to bankruptcy and if it's against the company then HMRC will object to the company being struck off the register if it's still a live company. If the company really is properly dissolved then I have to assume the debt HMRC have raised is against your friend personally based on his self-employment.