Problematic tax history..and cost of sorting it..

SizeSky

Hi

If anyone can help with this issue I promise to make a small donation to a charity of your choice on behalf of the person discussed - just name it.

A friend of mine has earned enough as self employed to have to pay tax for the year 2005/2006, however she has a problematic financial history:

2002/2003 She earned 1K freelance - undeclared - as well as agencies and temping work approx 10k - declared under PAYE.
2003/2004 She earned 3k - undeclared - as self employed in a menial job while with agencies and temping work she earned approx 8k declared PAYE.
2004/2005 She earned approx 10k with agencies/temping all declared PAYE.
2005/2006 She earned approx 13k as self-employed (so 7k taxable which she is paying)

To her thinking she never conciously thought she was avoiding paying tax, (she wasn't reaching the taxable threshold) and only in the last year did she see she had earned enough for Tax was to become a clear issue. Fwiw I would mention she was homeless and seeing a psychologist or periods during 2002-2004 so there were other priorities, but obviously that's no excuse.

She has invoices covering the amounts from 02-06 - however she has not factored in VAT *at all* and paid NI contributions only in the last year. Doesn't have all her p45's and p60's.

How bad is her situation (in terms of penalties and vat?)?
How much would you estimate it would cost an accountant to help on this?
Where would she find tax advice or help?

She does realise that it's time to sort it out so any help will be much appreciated and a donation given as mentioned above.

Hoddie_2

This is by the book

The following assumes that tax was deducted correctly from her PAYE income (not always the case with agency workers).

First off there will be a £100 failure to notify penalty. I have seen cases where this is not charged but you can expect this to apply.

You can forget about VAT - it will not apply.

2002/03
Tax due on £1,000 freelance will be £220. There will also be 2 x late return penalties, total £200, and 2 x 5% surcharges, total £22. Further interest will amount to less than £100.

2003/04
Tax due on £3,000 freelance will be £660. There will also be 2 x late return penalties, total £200, and 2 x 5% surcharges, total £66. Further interest will amount to less than £150.

2005/06
Tax due on £13,000 self-employed will be £1,540. Class IV National Insurance of £648. As long as all the above amounts are cleared and assuming this is paid by next Wednesday there will be no interest on this. Otherwise interest will accrue at about 45p/day. If it's not cleared by 28th February, a 5% surcharge (£109) will apply, and this will begin to accrue interest.

If HMRC are not expecting a tax return for 2005/06, it is important that she calls them on Monday to advise them that she has been self-employed since 02/03. If she can do this and get the 2005/06 tax return in by next Wednesday, she will prevent a further £100 penalty.

If my maths are correct then your friend is looking at at a total bill of about £4,000. Obviously this is a lot to find by next Wednesday.

This is an alternative method, not guaranteed to work

She could write to HMRC and ask them to review whether a repayment is due for 02/03 and 03/04. She should list every employer she worked for during the period, in date order, and provide details of any taxable benefits she claimed (incapacity benefit, jobseekers, etc). She should request that they take 'casual earnings' of £1,000 and £3,000 into account for the respective years.

Due to the amounts involved HMRC may decide to prepare informal assessments for both years which will still arrive at the same amount of tax due, but will avoid the penalties and interest. As I said, this is not guaranteed to work, particularly as the £3k earned during 03/04 may just be outside what they would allow to slip through as casual earnings.

Cook_County

Based on these numbers there may be Working Tax Credit due. Has this been claimed? If not then this should be claimed straight away as it will help with costs.

There may also have been expenses related to the casual earnings (eg travel) where an estimate of - say - a couple of pounds each day worked would reduce the tax payable...

whatatwit

When she was freelance, are the figures quoted net of expenses?

SizeSky

whatatwit wrote:

When she was freelance, are the figures quoted net of expenses?

I believe she's claiming expenses for 2005/2006, but has nothing for any other years. It strikes me that she probably hasn't recieved her full tax free threshold for these years as well.