HMRC tax debts and bankruptcy

Sram

She was working for herself for just under a year I believe. 2 or 3 jobs a week. She says she didn't tell anyone that she hadn't registered as self employed but she may not remember if she did.

I have seen newspaper reports of how HMRC drive around looking at the ads builders put up outside their jobs and using those details to look into their tax affairs. I has assumed that perhaps that's what happened here but you may be right.

There's this case that was overturned in court of HMRC trying to get a scaffolder to cough up a million pounds because they saw his companies display signs on jobs that they claimed he hadn't submitted vat returns on. It's an extreme example but I thought that's maybe how they found my sister. Purely by looking for people advertising themselves and then looking into their affairs. But you maybe correct. It's probably more likely that she was reported by someone. I doubt HMRC are obliged to explain.
http://www.telegraph.co.uk/finance/personalfinance/tax/11664541/HMRC-demands-1m-from-scaffolder-over-11000-unpaid-tax.html

Jimbo8012

The newspaper reports are bullsh*t aided and abetted by HMRC PR. Take what you read in the Telegraph or the tabloids with a heavy pinch of salt. HMRC want you to think that they're big brother and looking at everyone's tax affairs as they obviously want to keep tax evasion to a minimum. As I've said before, HMRC are chronically underfunded, understaffed and overworked.

I knew someone who was a labourer who hadn't paid income tax or VAT for 25 years before he died. He did a number of jobs for my Mum and Dad including a £10k kitchen back in 1990. Once you're off the radar, you're off the radar (unless you're reported). However, the difficulty is when you've been off the radar for years and you try to get a PAYE job. That will undoubtedly trigger a tax inquiry,

With regards to The Telegraph story, the builder will have been bulleted for taking cash in hand - maybe a relationship with a former client turned sour? It has nothing to do with street sweeps....I guarantee that.

Anyway, back to your issue. Your sister is only a hairdresser and has worked for under a year. She probably owes no tax. In my opinion, there's zero chance that HMRC were onto her. Very likely she's been reported for tax evasion so she must have told someone about her situation.

If she owes zero tax, she'll owe zero penalties but she needs to file tax returns asap before HRMC make determinations. Late filing penalties are severe and can be up to £1,600 per tax year. She obviously wants to avoid this. An accountant will stop this from happening.

Sram

Jimbo8012 wrote: »

Having zero assets but a decent income is probably the best situation to be in with regards to a HMRC tax debt. Little incentive for HMRC to go for bankruptcy as it’ll cost them a lot of money with no return. Also gives wiggle room to potentially negotiate a 'time to pay' arrangement but arrangements over a year are extraordinarily rare for private individuals.

Out of interest, what about debtors with zero assets and a low income? HMRC can't get at assets that don't exist and if someone is on a low income then they can't be forced to pay what they don't have after bills? What are HMRC's options then?

Jimbo8012

If there are no assets to realise and there's no real feasibility of the debt being repaid in a reasonable time frame, then bankruptcy is conceivable if someone owes more than £5k. It'll take time though.

However, I don't think from what you've described that your sister will have to declare bankruptcy. If she's earned less than £20k in a year period, she'll likely owe less than £1k in tax once the £11k personal allowance and business expenses are taken into account. This is payable particularly with family support.

If this is close to the tax owed, HMRC won't be able to make your Sister bankrupt or even get a CCJ. A creditor (including HMRC) could only make your Sister bankrupt if she owed more than £5k in tax.

I think the situation could be a lot worse. Get her to see an accountant, go with her and this will be sorted within the next few months and she'll be able to move on.

It's not like she owes £75k + and has to deal with a COP9 investigation. There are people in much worse situations.

Mouse007

Some good advice above, may I offer something a bit less alarmist:


I have a mobile hairdresser as a client, average turnover (money received) over the last 7 years £14,500. That’s about £300 a week.

Average cost of hair products £900, 6% of turnover. Average travel costs (mileage) £4,200 and average others costs (Postage, stationery, telephone, insurance, my fees) about £1,100. Use of home claim, £260 per annum.

On average she make about £8,000 per year. That equals no tax.


Your sister only worked 6 months, 2 or 3 jobs per week.

How much did you sister charge on average for a haircut. What was the most she ever charged?

Where did she do the work, did she travel to customers?

Multiply that out, estimate some costs. If you come in well below the personal allowance for that year file those numbers asap. Chances are HMRC will just accept them. If they don’t PM me.

Appeal late filing penalties on grounds of mental health issues (done it for clients, it worked).

edit to add:

Also check her bank statements to see what was being paid in, do a common sense check, does it add up? does it fit her lifestyle? are there any large or unusual amounts?

It's quite simple and, in the circumstances, acceptable to do this.

Sram

Thanks Mouse. Are HMRC reasonably understanding when it comes to mental health issues? I know that under the equalities act they must make reasonable adjustments. My sister has psychological reports going back years proving that she has a long history of poor mental health so evidence of that is not a problem.

Mouse007

Sram wrote: »

Are HMRC reasonably understanding when it comes to mental health issues?

Yes, they have to be. If she has received any penalties let me know and I can suggest some wording for the appeal letter. But the tax returns must go in first, nothing can be done until they have been filed.

antonic

Sram wrote: »

Thanks Mouse. Are HMRC reasonably understanding when it comes to mental health issues? I know that under the equalities act they must make reasonable adjustments. My sister has psychological reports going back years proving that she has a long history of poor mental health so evidence of that is not a problem.

Yes because they are governed by the Equalities Act 2010, but they have to be made aware of her problems ( hence my reference in my previous post to the NES team)
If she wants you to act on her behalf (and you want to) she will also need to send in a letter of authority or a form 64-8 (signed by her) and which can be downloaded from the HMRC website.