Please help- moral dilemma

simonshd

I recently discovered that my friend (John) is tax evading and renting a house share with 7 people without a HMO license. He runs a consultancy business from the conservatory of a house he inherited and he has 4 employed staff. However on the same floor of the house he has rented two rooms to separate people (people not affiliated with each other) and on the top floor he has rented out 5 rooms to people not otherwise affiliated to each other. I also know that this income (almost 4000 a month) is not being taxed but funnelled through his business. I want to report him but the idea of potentially costing his employees their jobs is really eating at me. Many thanks

[Deleted User]

Sorry to be hard, but if his business needs that kind of money injection, its probably not going to last long anyway. Plus I would have assumed that an accountant would wonder where the money was coming from too, your friend will hit all sorts of problems eventually.

anselld

How do you know he needs an HMO license? Not all HMOs require a license.

How do you know he is not declaring the income? If the income is being "funnelled" through the business then it should be shown on the business P&L and be taxed accordingly.

moneyistooshorttomention

deannatrois wrote: »

Sorry to be hard, but if his business needs that kind of money injection, its probably not going to last long anyway. Plus I would have assumed that an accountant would wonder where the money was coming from too, your friend will hit all sorts of problems eventually.

I would tend to agree with this comment.

I can quite understand you are in a dilemma here. I would be quite clear as to what to do about the friendship (ie forget it and not have him as a friend any more).

I would worry about the jobs of these people involved and would definitely be tossing up between making sure he paid his tax on the one hand or worry about their jobs on the other hand. My sympathies that this "friend" has put you in this position.

Either one of two things is likely though, ie:
- either he can afford to run the business in a legitimate way and can pay the tax and keep employing the people concerned (ie win/win except for him personally of course)

OR

- and this is the most likely scenario = he is skating by JUST on the back of not paying his tax and the business might indeed collapse if he paid tax.

I would think that someone who is skating by the skin of his teeth like that is indeed likely to crash at some point soon anyway, so it wouldn't be your fault IF there were any job losses because of you reporting him iyswim (ie because those people would lose their jobs soon anyway, if they were going to).

The other thing is that there must be other people who at least suspect what this man is up to, but maybe don't have as clear evidence of the fact as you do or would back him because of personal bias (maybe they are a friend of his and are the type of person who will back their friend, rather than what is right?).

I would come to the conclusion, in your position, that those employees might be jobless anyway soon with his business being run on that basis and that the most important thing was not to have this man there setting a bad example of people getting away with it and I would report him.

It is very very clear indeed to me that he would be no friend of mine if he was up to that sort of thing.

There is, of course, nothing to stop you watching out for those employees and trying to help them get other jobs if it is within your power to do so obviously. I would certainly be helping them with any info. I had about potential other jobs to minimise any possible effect on them.

THE one thing that is very very clear (apart from chucking this person off your friendship list) is to be as certain in your own mind as you can be that he is indeed evading tax, as HMRC investigations are a harrowing thing to be on the receiving end of (for small businesses). Rather a different kettle of fish as to what some mega-size businesses manage to get away with:cool::eek:. But for a small business, then it will be very harrowing for him to be on the end of it, and hence why you need to be sure in your own mind that this is what he is up to before you put him through it. If you are sure, then let the dogs loose....as he deserves what he will have coming to him.

kazwookie

If you feel the need to report him, then get on with it.

G_M

I believe you should contact the local council, let them know you are running an HMO, and ask whether it requires a licence under the specific rules of your local authority.

Ensure the rental receipts are declared on your tax reurn.

Many of the HMO licence rules are there for safety reasons (eg fire), others are to protect tenants from exploutation and/or overcrowding (eg sufficient bathrooms etc). So evading the rules is immoral as well as illegal

Tax evasion likewise. We all suffer from governmnt cuts caused in part by insufficient tax receipts (yes, I know, Amazon avoids far mor tax than you do!), but the principle is the same.

And the penalties for evasion are yet another aspect to consider.

http://www.mglewisandson.co.uk/hmo-houses-in-multiple-occupation/hmo-penalties

http://www.plymouth.gov.uk/homepage/housing/privatehousing/landlords/hmo/hmolicensing/hmopenalties.htm

kinger101

I'm not condoning what John is alleged to be doing here, but I'd hate to be your enemy if that's how you treat your friends.

theartfullodger

That you asked the question says you know the answer, of course..

It is surely the duty of all citizens to assist the authorities in the pursuit of wrongdoers: You'd 'phone Police about a murder, this case is but different in the matter of the seriousness..

HMRC fraud reporting...
http://www.hmrc.gov.uk/reportingfraud/
Your local council HMO guys will be pleased to hear from you:

We don't want tax cheats in our country any more than we want benefit cheats.. Who wants to be friends with a crook & a cheat?

Cheeky_Monkey

Just do it

Bart1

You need to look up the word friend

AdrianC

I think you're making a bit of a leap by assuming that he's somehow cheating the taxman by "using the rental income in the business", certainly without knowing a LOT more about his finances and tax return.

If the business is a limited company, then he can't then just take the money out of the business without being taxed on it. Both the accounts and the tax return will show his own injection of capital into the business, balanced against whatever he takes out of the business.

If he's running it as a sole trader, then there's no legal separation between his own finances and those of the business, and he's taxed on his income/profit for the year as a whole, regardless of source.

So, either way, unless he's lying on his accounts and tax return - which you have no way of knowing - there's nothing inherently wrong with what you think he's doing.

From the way that you include the irrelevant details of the sums involved, the type of business and the source of the property, I can't help wonder if there's an element of jealousy involved.