A question about Tax Evasion of the Self Employed..

Leanne200

Hi sorry if I have posted in the wrong place, I couldn't find anywhere else that looked suitable..

I have a friend... well more of an aquaintance who is a taxi driver so therefore self-employed... (now I dont know anything about tax when you are self employed so excuse me if I seem unknowlegable) He has not paid any tax for about 6 maybe 7 years I think, as he has not been keeping records of his taxi fares or any books or accounts so he has not been able to fill in tax returns at all.

Clearly this is his own stupid lazy fault, and now he wants to get it sorted because he can't get a stable job/house ect without being caught out... So he wants to right all of his wrongs basically.

I am just really looking for some advice to give him to give him the boost he needs to actually do something about it, I think that he could end up in prison for this if I am right?

Is there anyway/chance that he can approach the Inland Revenue ammicably to arrange some sort of plan? Although bearing in mind that he has never kept any books so how would they even know how much he should owe???

Any advice or information would be very much appreciated as I am quite worried about what may happen to him, as he can't carry on like this forever.. he is about 42 years of age as it is already!

Thanks in advance

Bean_Counter

Hi,

The tax man states that you are supposed to register with him within three months of starting to become self-employed. Obviously your friend is way past that.

For starters you can expect to pay interest and penalties on the whatever tax is calculated as late. Nobody likes people who evade tax, especially the tax man. Failing to register within the three months is £100 and that is just for starters.

It may seem tempting to start registering from today and hope that they do not find out. However, one question they will ask is when did the self-employment start? A false answer can lead to prosecution in the worst cases.

My advice is two fold. Firstly contact the Inland Revenue (or HM Revenue & Customs as they are these days) Helpline for Newly Self-Employed on 0845 915 4515 to get the ball rolling.

I would recommend full disclosure. Whilst HMRC can prosecute for serious fraud or the fraudulent evasion of income tax, this is much less likely if you disclose your previous self-employment before they discover it. This means that HMRC would instead seek a monetary settlement involving the unpaid tax, plus interest and penalties. The level of penalty is based on a percentage of the tax not originally declared. In theory, the maximum level of penalty is 100% of the tax. However, in practice this penalty is mitigated depending on the level of co-operation, whether you make a full and complete disclosure, and the size and gravity of the offence. HMRC will send you a leaflet explaining how they calculate penalties, and the extent to which you can help to reduce them. What the tax man may decide to do is assess tax based on what they think the average taxi driver would earn. So, the good news is that if your friend approaches the tax man before he approaches your friend, the penalties will be less.

Secondly. it may well be worth obtaining professional advice. I always believe that a decent accountant should be able to save you more money than he / she costs. In this case, your friend will be looking at a significant tax bill and there is likely to be room for negotiation.

Hope this helps.

WHA

I would advise that he should go and get an accountant first, before talking to the Inland Revenue. Once the Inland Revenue are involved, the "machine" goes into action and he'll be bombarded with letters, tax demands, assessments, tax returns etc., all of which will be wrong as the Inland Revenue don't know how much he has earned, making the whole process more worrying, complicated, time consuming and expensive.

If he goes to an accountant first, the accountant can work with your friend, to try to arrive at figures which are as close as they will ever be, draft the outstanding tax returns and present a "fait acompli" to the tax inspector of the client/accountants best estimates of earnings, and resultant tax liabilities, with proposals to pay the outstanding tax by instalments. The tax inspector is likely to be more impressed with such an approach as they would have far less work to do, and it makes their "statistics" look good - i.e. £x of tax recovered with virtually no effort on their part. The potential 100$ of tax penalty will also be mitigated down far more, although the interest, late filing penalities and surcharges on late payment are automatic and aren't negotiable.

Remember it is "self assessment" - your friend had a legal obligation to register for tax, complete tax returns, and pay the right amount of tax on time. It is better to go through this process late, than not at all, as if the tax inspector has to raise "estimates" or assessments in the absence of any real information, they WILL raise their tax demands at a high level, probably far higher than is really due. That is why it is better to get an accountant and get some "best estimates" of the figures to give to the Inland Revenue, rather than letting them have a free hand on what they think is appropriate.

Also, at the very least, it is VITAL that the current year's tax returns are completed properly and in time - the more recent information should be far easier to pull together and if they can prove with certainty what they income was for a later tax year, it is easier to work back and say it was a typical year and the earlier years should all be similar.

What he shouldn't do is just bury is head in the sand and hope it goes away. It won't. At this stage, he can avoid prosecution by coming clean and making full and honest disclosures. The longer it goes on, and if HMRC come after him after finding out of his actions from other sources, the more likely he could be prosecuted, and in exceptional cases of high tax evasion and continued lack of disclosure/assistance, then prison is a possibility (although unlikely given the relatively low amount of tax at stake - it's hardly likely to be hundreds of thousands of pounds is it?).

dejongj

Could always move to another country for 6 years and then come back!?

Murdina

Not sure that would help - Revenue can go back further than 6 years (20 I think from memory) and might well consider prosecution in such a case.

zcaprd7

Tell him to get an accountant - they are used to this situation and HMRC will be happy to get something out of him...

amf

Good response jimmo:)

I agree with the general concensus - a decent accountant will probably be able to save his client dosh in these circumstances.

Bedmouse

what sort of trouble would his friend be in if he hadn't paid tax and as a result of poor business acumen and stupidity he was just about to go bankrupt therefore no being able to pay any contributions and making the unpaid tax part of his bankruptcy

Money_Grabber13579

Bedmouse wrote: »

what sort of trouble would his friend be in if he hadn't paid tax and as a result of poor business acumen and stupidity he was just about to go bankrupt therefore no being able to pay any contributions and making the unpaid tax part of his bankruptcy

Lack of knowledge is no excuse. It would be his duty to sort out his tax affairs, and getting an accountant if he didn't understand the system.

When bankrupt, the taxman gets his share of the assets first, then the other creditors. Even with this, a prosecution can still take place.

Bean_Counter

Money_Grabber13579 wrote: »

When bankrupt, the taxman gets his share of the assets first, then the other creditors.

HMRC lost their preferred creditor status in 2003. Some say this has led to HMRC becoming more aggresive in chasing late payments.

Money_Grabber13579

Bean_Counter wrote: »

HMRC lost their preferred creditor status in 2003. Some say this has led to HMRC becoming more aggresive in chasing late payments.

So they did! My mistake, sorry!:o