Self employed, possible tax evasion, one big mess - help needed

chowchow

Hi,

This is rather embarrassing really (not to mention a HUGE mess) but I've been puting this off for several months now and really need to get to the bottom of it. Since MSE seems like an ideal place to seek advice anonymously, here goes...

Back in roughly October 2010 I found myself unemployed, so I started claiming Job Seekers Allowance. After a chat with the JSA adviser and explaining my intentions, I was told that after I'd been claiming benefits for 8 weeks I'd be able to go to college on an 'introduction to business' course, and also have access to my own business adviser (with NWES). This is exactly what I wanted since I had an idea for starting a new business (high-end car valeting) and wasn't really interested in any of the jobs that were available at the time.

I went to college while claiming JSA (as advised), and come the end of February 2011 I was told to sign off JSA and register as Self-Employed; I done this the same day that I signed off JSA.
If I recall, I registered as a sole-trader, under the car cleaning company name, which started on the 1st March 2011.
The DWP then continued to pay me roughly £50/week for 12 weeks or so (as some sort of help towards my income because I'd gone Self-Employed).

Long story short; due to not having enough money to proceed with the business start-up (premises were going to be too costly), it never got off the ground. I spent roughly £1200 on cleaning products and materials (I have receipts), and valeted about 8 cars in total for friends and family only (but was paid in cash and therefore I have no trail). All in I spent roughly £1200 and made roughly £200.

After a month I decided to go back to doing what I do best - Website Design/Development and Marketing. I setup a creative agency based from home. I never had any employees - only some go-to freelancers which I used from time to time.
Anyway.. I've been running this business since April 2011 and it's still running today; growing each year (albeit slowly).

Now here's the embarrassing part;
I've never contacted the tax man to let them know that the business I initially registered never went ahead, and that I'm now running a completely different business under a different name.

I've kept all of my receipts (incoming/outgoing) and have been invoicing my clients for every project that I take on. I have paper/bank trails for everything; albeit up until late last year I was using my personal bank account.

I've never filed a self-assessment/tax return, I've not paid any tax or national insurance since being self-employed, I've not been paying into any sort of pension, I don't have an accountant, and I haven't been doing any book-keeping whatsoever.
Basically all my receipts and invoices have been stuffed in a drawer for the last few years as I didn't know I had to declare or submit anything to the tax man if I'm not earning more than the tax allowance.
I now understand this isn't true but I'm a bit scared of going to the tax man and coming clean because I simply can't afford to pay a huge tax bill if it's presented to me. I'm also scared about any big fines that I may have coming my way.

Truth be told I've been scrimping and scraping for a few years now just to get by in life. I could probably have earned more money on JSA or working in Maccy D's than I've made from working 14hr days & 7 days/week during the last few years of being self-employed. It's been a really tough ride for me as I started with about £50 in my pocket, but I've stuck at it because I've been determined to make it work and fortunately I've had supportive parents to put a roof over my head.

Here are my estimated earnings from the last few years:
Car valeting business:
Mar 2011-Mar 2011 - loss of £1000
Internet agency business (these are estimated earnings after expenses such as computers and paying freelancers & bills):
Apr 2011-Apr 2012 - £600
Apr 2012-Apr 2013 - £2,200
Apr 2013-Apr 2014 - £4,600
Apr 2014-Apr 2015 - £9,000
This coming year I'm expecting it to increase to roughly £12,500.


I know I've been stupid in not realising the massive hole that I've been digging for myself but I'm hoping some of you can offer me some advice on what I should do in order to 'come clean'?

Lastly; a friend of mine said I shouldn't be worried about coming clean because based on what I've been earning these last few years I could have been claiming 'Working Tax Credits'. Upon his recommendation I used the calculator over at the "entitledto" website, and it says I'm entitled to roughly £2,700 per year for the last few years (it'd only allow me to check back as far as the year 2012/13). If this is true, great.. but I'm not getting my hopes up for this to be honest.

I'm more interested in coming clean with my earnings and not being left worried about the tax man catching up with me one day.

Any advice would be greatly appreciated.
Thanks for reading

PlutoinCapricorn

I am sure that this will get sorted out with help from people on here.

It is a pity that the JSA encourage people to 'start their own business' in this way.

If you registered as a sole trader, HMRC should have sent you reminders to complete a self assessment. Did you get any? Have you changed your address?

PlutoinCapricorn

By the way, when you complete a self-assessment as a sole trader you can submit two lots of figures if you have two very different income streams.

chowchow

PlutoinCapricorn wrote: »

I am sure that this will get sorted out with help from people on here.

It is a pity that the JSA encourage people to 'start their own business' in this way.

If you registered as a sole trader, HMC should have sent you reminders to complete a self assessment. Did you get any? Have you changed your address?

Thanks for your input, Pluto. Yes, I've moved house several times since registering as self employed so that'd explain why I've not heard from them (although I do have the same telephone number that I've had for almost 8 years).

PlutoinCapricorn wrote: »

By the way, when you complete a self-assessment as a sole trader you can submit two lots of figures if you have two very different income streams.

Please excuse my ignorance, but why would I need to do this if I only have one income stream?

Thanks

PlutoinCapricorn

You can split your income if necessary - if you were doing two different types of work at the same time during that tax year.

It is really important to make sure that HMRC know your current address. It is likely that reminders and penalty notices have been going to old addresses, and having moved and/or not earning enough to pay tax is not a good enough reason for not completing a self-assessment when asked to do so.

Maybe phoning HMRC is the best thing to do. It is better to come forward than let them find you. Have you still got the UTR or reference from when you registered?

chowchow

PlutoinCapricorn wrote: »

You can split your income if necessary - if you were doing two different types of work at the same time during that tax year.

It is really important to make sure that HMRC know your current address. It is likely that reminders and penalty notices have been going to old addresses, and having moved and/or not earning enough to pay tax is not a good enough reason for not completing a self-assessment when asked to do so.

Maybe phoning HMRC is the best thing to do. It is better to come forward than let them find you. Have you still got the UTR or reference from when you registered?

I see - that shouldn't be necessary I don't think, since I ran the valeting business for the first month, then packed it in and started the web/marketing business. I've never ran 2 businesses at the same time.

I did think about calling HMRC and seeing what they said, but
1. I didn't imagine them taking to me as a 'John Doe', but rather requesting my identity and thus potentially dropping me in immediate hot water, and..
2. I thought I'd seek advice from here first just so that I have some sort of idea of what to expect, going forward.

As you'll see from my income in my initial forum post, any penalty/fines/tax bills that I'm faced with are going to be a struggle for me to pay, especially in one go.

Also the last thing I need right now is debt collectors coming after me, since me and my girlfriend plan to go for a joint mortgage next summer, and for the last 2 years I've been working on improving my credit report (which is now looking good for the first time in 10 years) - I guess I'm scared that this will all be undone in the blink of an eye once the tax man gets wind of this, unless I'm able to pay any outstanding monies to them right away.

I was kind of hoping someone here could give me a rough idea of the costs I'm likely to face (if any), so that I can at least scrape together some money prior to 'coming clean' with the HMRC. Granted I know nobody will know for sure what my fate will be, but based on the earnings I've stated, perhaps someone can give me an idea?

RE my 'UTR' (which I assume is the code that I was given upon registering as self employed).. I don't have it to hand, but I'm sure I can find it buried away in my paperwork drawer somewhere. I assume I'll need this for when I contact HMRC?

Again thanks for your input

PlutoinCapricorn

The UTR is your unique tax reference, similar to a National Insurance Number but for self-assessment. This helps to ensure that HMRC get the right person.

It is a very good idea to spend some time finding out what you should do and what the results might be, and to prepare before consulting HMRC.
Have a look at this:

http://taxaid.org.uk/guides/taxpayers/tax-returns/late-tax-returns

Some accountants offer free consultations.

PlutoinCapricorn

The fact that you might have successfully claimed WTC is not really relevant: hypothetical money you might have got cannot be used to offset money owed to HMRC for interest and penalties.

I am not sure whether or not WTC can be claimed retrospectively.

PlutoinCapricorn

http://taxaid.org.uk/guides/taxpayers/tax-returns/late-filing-penalties-and-appeals

PlutoinCapricorn

In your position, I would set up 5 spreadsheets, one for each of the complete tax years. One page for income on a month-by-month basis; one page for legitimate expenses on the same basis. Total income minus total expenses is total profit, three figures that go on the tax return. If the total profit is less than the Personal Allowance, there is no tax to pay. It is worth itemising the expenses to give a picture of the business.

One thing that occurs to me is that HMRC might want to know how you have been living on such a small income.

Castle

PlutoinCapricorn wrote: »

The fact that you might have successfully claimed WTC is not really relevant: hypothetical money you might have got cannot be used to offset money owed to HMRC for interest and penalties.

I am not sure whether or not WTC can be claimed retrospectively.

WTC can only be back dated 31 days.
https://www.gov.uk/claim-tax-credits/backdate-a-claim

Based on the estimated profits although no Income tax appears payable for the years up to 2015; Class 2 NIC's would have been due for each year and Class 4 NIC for 2014/15.