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How far back can the HMRC go? Very small trader and disclosing.
LurkerTurnedPoster
Posts: 170 Forumite
I have just been sent a link to a leaflet by Smarta who state that the HMRC can now only go back 4 years if they believe a deliberate fault has been found in someone's tax affairs and that for VAT it has been increased from 3 to 4 years.
This is the opposite of what I have read on this site. Here I have understood that if the HMRC break the books in the last year filed (currently April 2010 to April 2011, which should have been filed Jan 2012) then they can go back 6 years, and if they find the deliberate fault, then they can go back 20 years.
Is there a difference between a "deliberate fault" and "fraud" and "evasion"?
I am talking to a friend who has realised they have been trading on eBay, thinking that they would not have to declare small amounts of moneey on hand made goods. They realise this wasn't a hobby, and that they were trading. They started making things for friends several years ago and would make things for birthdays. They are ready to disclose but was looking at page 7 of this: http://www.smarta.com/media/2794438/smarta_complyordie_ebook_final.pdf
Could anyone explain this please?
At the moment they have decided that the amounts are relatively small and will get a part-time job on top of their fulltime job to pay back any tax owing until it is all paid off. This being preferable to looking over their shoulder. I have advised them to get a tax specialist to make their disclosure to the HMRC. It is sometimes said on forums "the taxman wont care about small amounts they are after the big traders" but that isn't particularly true and they realise that just because someone else doesn't declare 200k it doesn't make their 1k over several years disappear.
This is the opposite of what I have read on this site. Here I have understood that if the HMRC break the books in the last year filed (currently April 2010 to April 2011, which should have been filed Jan 2012) then they can go back 6 years, and if they find the deliberate fault, then they can go back 20 years.
Is there a difference between a "deliberate fault" and "fraud" and "evasion"?
I am talking to a friend who has realised they have been trading on eBay, thinking that they would not have to declare small amounts of moneey on hand made goods. They realise this wasn't a hobby, and that they were trading. They started making things for friends several years ago and would make things for birthdays. They are ready to disclose but was looking at page 7 of this: http://www.smarta.com/media/2794438/smarta_complyordie_ebook_final.pdf
Could anyone explain this please?
At the moment they have decided that the amounts are relatively small and will get a part-time job on top of their fulltime job to pay back any tax owing until it is all paid off. This being preferable to looking over their shoulder. I have advised them to get a tax specialist to make their disclosure to the HMRC. It is sometimes said on forums "the taxman wont care about small amounts they are after the big traders" but that isn't particularly true and they realise that just because someone else doesn't declare 200k it doesn't make their 1k over several years disappear.
No debts. No credit cards. No store cards. No mortgage. No CCJs. High credit rating intact. Living frugally. Want to start business soon. Trying to keep head above water; while standing on own feet; staying within the law; and not falling into debt. Looking to raise income, who isn't?
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Comments
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I think the advice you've given your friend is good - But it would a lot better for them if they go to the taxman themselves (or their representer) rather than wait until HMRC writes to them (i.e. 'Unprompted' rather than 'Prompted'). They will have to pay the tax, but then at least the fines will be minimal as opposed to what they could be if your mate is not what they refer to as being 'fully compliant'.
I think the truth is the taxman can go back as far as they want to (if there's sufficient evidence for major fraud) - but usually the limit is 6 years to save on the admin.
Your friend needs to seek specialist advice - the sooner the better really. HMRC aren't evil. They were really good with me.0 -
They have worked out they were not careless, and ignorance is no defence but I think that they have evaded tax, rather than committed fraud. They are going to disclose before being prompted without concealing anything. We had to suspend jokes like "You are going daaahhrrrn" until they were convinced they were not going to jail.
And all for a bit of arts and crafts.No debts. No credit cards. No store cards. No mortgage. No CCJs. High credit rating intact. Living frugally. Want to start business soon. Trying to keep head above water; while standing on own feet; staying within the law; and not falling into debt. Looking to raise income, who isn't?0 -
LurkerTurnedPoster wrote: »They have worked out they were not careless, and ignorance is no defence but I think that they have evaded tax, rather than committed fraud. They are going to disclose before being prompted without concealing anything. We had to suspend jokes like "You are going daaahhrrrn" until they were convinced they were not going to jail.
And all for a bit of arts and crafts.
Its irrelevant what your friend thinks, its what HMRC thinks that counts.
As you have said, get them to `fess up & pay up and there shouldnt be any problems.0 -
Do you know the difference between those three things? Is there a difference between a "deliberate fault" and "fraud" and "evasion"?
And do you know if the Smarta booklet has it right in saying the six years has been cut to four years? Or did they have that wrong? Not that in this instance the taxpayer is going to wait for the HMRC to knock on their door - so it wont be a discovery through checks.No debts. No credit cards. No store cards. No mortgage. No CCJs. High credit rating intact. Living frugally. Want to start business soon. Trying to keep head above water; while standing on own feet; staying within the law; and not falling into debt. Looking to raise income, who isn't?0 -
Had a quick read through the booklet, and all though its not written by HMRC, what they say is correct.
What has been cut from 6 years to 4 is HMRC`s ability to undertake an enquiry if they believe that tax has been underpaid because they havent registered EXCEPT for cases of serious tax fraud (which I think doesnt apply here) when they can still can go back 20 years.
It also means that your friend can only make claims going back 4 years also, not the previous 6 (This makes it equal to both parties).
As for declaring the income they will need to follow the steps here
http://www.hmrc.gov.uk/incometax/ways-to-pay.htm0 -
In my own experience I was sent a letter concerning one year. I did some checking realised I had stuff outstanding for 8 years.
Then I cried a bit.
I rang them up and said there may be more than what they knew about. They asked for 6 years worth...
... I sent details concerning them all 8, as I did not want anything hanging over me and I was warned by a friend (in the know) that they *could* go back as long as they wanted to if they had reasons to believe you were holding anything back.
My excuse was that I didn't realise. I had thought I was taxed at source, but I hadn't had been. This is negligence on my part and I held my hand up to that.
I don't mind paying tax. In fact I think I pay more than I need to, but to be honest... I've had my education free, access to the NHS, from a military family and am ex-mil myself. My view is that I wanted them to know that I wasn't trying to hide anything and that it was a genuine mistake.
I was also horrified that I could get it so wrong and I wanted it ALL sorted there and then. Things have a nasty habit of biting you on your bottom... My bum is so chewed that it looks like a cauliflower.
Seriously... your mate either wants this sorted or they don't. Any half-@rrsed measures concerning fannying about about 'How far back do they go' are just risks at this stage.
Just remembered! How could I forget this!!!!
They actually let me off the first 2 years and wrote it off officially.... I think! As I had declared the income they decided those years weren't worth pursuing and they wrote it in the summary they sent me. I have to go home to check as my paper work is there!!!
Honesty did pay off in the end....0 -
What is serious tax fraud? Is that carousel fraud, or is it the length of time of the fraud, or the amount of money? I have looked at the leaflet and it is just those three types CT IT and CGT. Or is serious fraud when someone realises tax is due, and continues to not disclose, or to not start paying if they continue with the trading?No debts. No credit cards. No store cards. No mortgage. No CCJs. High credit rating intact. Living frugally. Want to start business soon. Trying to keep head above water; while standing on own feet; staying within the law; and not falling into debt. Looking to raise income, who isn't?0
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Update. Crafts trader (very small scale) has disclosed before the June 14th deadline and feels great They are planning to downgrade their car to pay any bill off in one go.
Since this came about we have experimented with searching for open information on a social networking site and found so much information that the HMRC could use, openly published.
No doubt the taxbods at HMRC HQ are already doing this with big results.No debts. No credit cards. No store cards. No mortgage. No CCJs. High credit rating intact. Living frugally. Want to start business soon. Trying to keep head above water; while standing on own feet; staying within the law; and not falling into debt. Looking to raise income, who isn't?0
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