Self-Assessment - questions from an expat

youcangetholdofjules

Hi, as a small business owner with an accountant of 7 years (same time as I moved to the UK), I found out only recently about the UK's Self-Assessment rules. Yes, that means I wasn't paying self assessment for 7 years and the fines were predictably astronimical. I paid on the spot as HMRC in this particular instance were very heavy handed with me (previous encounters when claiming R&D Tax Credits, although they made me write 100 pages of explanations on top of the research documents, they were quite genuine and friendly in their dealings with me and were happy to grant me the relief in the end). I did have rather a lengthy chat with them for Self-Assessment over the phone, that person was pretty good too - let something slip I didn't think I'd hear them say - that sometimes expats do fall into this hole, but the rules are the rules - I can appeal, and that I had paid things off immediately would be slightly in my favour, but since the end of Covid HMRC was not being so lenient any more - hey I thought that was at least a modicum of being straight up about things even though it hasn't changed the outcome.
Question however is who is the person who shold be telling me about my obligations here (and I know I will get a chorus of "thats your problem, dummy" - well, no, I disagree. For my business, I have an accountant who went through the business side of my tax obligations in ok'ish detail, and I pay over £40k in various taxes each and every year, and I reasonably thought that this was the end of it - with a bill like that, I've been stung enough, or so I thought. But no - I found out to my horror a year ago about self assessment - and the advice given to me by my accountant since then has been truly shocking. Variously:
A) Just register - and given that you've just registered you wont have to pay any fines. (this could not be further from the truth).
You don't need to file immediately (this was Feb 2022) as you've just registered, just make sure you submit ALL your returns in time by Jan 31 2023. Dear god did those fines go up in the intervening year.
C) I *DID* get a self assessment reminder from my accountant in March of 2022. Bit late buddy, that horse hasn't just bolted, its run off, had babies and since been turned into glue. 
D) HMRC never sent me any information pertaining to the thresholds or criteria for registering for self-assessment. They sure sent me a million other piece of correspondance so they know who I am and where I live. Reminders for this, bills for that, even a refund or two which my daughter tore up infront of my face (£5, so it didn't end in captial punishment, just a bemused interrogation about why that particular piece of paper and not any other piece of paper).
E) (main question here) - Do I have any recourse against my accountant for such obviously wrong advice. Yes, its all on email. I dont think these guys set out to dupe me, they just weren't very good at their job.
F) Does my appeal to HMRC stand any realistic chance of finding any sympathy (honest question, don't mock me, although I'm sure there will be howls of derison for my insolence to even ask such a silly thing), and is it worth following any rejected appeal of this nature up the escalation path (first-tier and upper tier tribunals).

Thanks

youcangetholdofjules

And - for context, a few of my expat cohort (and these guys are senior execs) fell into the exact same hole - although they were perm employees so not relying on an accountant. Why cant HMRC send out a letter stating we've tripped one of the thresholds - you now need to register for Self-Assessment. Why? Why.....

Jeremy535897

Was your business a limited company or an unincorporated business? Who are the parties to the letter of engagement with the accountant?

There are different penalties for different things. If you haven't been asked by HMRC to complete a self assessment tax return, even if you should have done, some of those penalties cannot be charged. Your penalties will have been penalties on tax not paid on time, along with interest.

youcangetholdofjules

Jeremy535897 said:

Was your business a limited company or an unincorporated business? Who are the parties to the letter of engagement with the accountant?

There are different penalties for different things. If you haven't been asked by HMRC to complete a self assessment tax return, even if you should have done, some of those penalties cannot be charged. Your penalties will have been penalties on tax not paid on time, along with interest.

Ok great - this sheds a bit of light oin things - I can categorically say that I have NEVER received any letter from HMRC telling me to either register or file a return for Self Assessment. Its good to know that this *should* have happened otherwise this feels a bit like entrapment - "we're very sorry that you didn't know the rules, but knowing the rules is your responsibility, so here is a £10k fine to ensure you never forget again. HMRC wishes you a pleasant day. Oh, and by the way, interest is racking up quickly, so pay it pronto".

Sillyness aside, I have been unable to work out what to make of this - wilful scheme to extort (given that a few of my expat friends fell into the same hole), woefully bad accountant (yes, he was), or just a slipup from HMRC (the optimisitic appraisal).

The Answer to your first question - Limited Company. 

Jeremy535897

You are racing towards an unwarranted conclusion. There are several penalties in self assessment. Just one of these relates to failing to tell HMRC that you need to complete a tax return, and it is modest, although it is your obligation to register for self assessment if you meet any of the criteria. You can easily see them here:
https://www.gov.uk/self-assessment-tax-returns/who-must-send-a-tax-return

There are penalties for failing a return late, but these can only be charged when HMRC has asked you to complete a tax return. But they can also charge you for interest and penalties where you have paid tax late, whether you completed a tax return or not, and I suspect that this is what you have paid.

My next questions are as follows:

• were you paying the correct PAYE and national insurance on your salary? The company as your employer is required to collect tax on your salary etc and hand it over to HMRC monthly
• what has being an expat got to do with your tax liability? Were you non-UK resident, or non-UK domiciled?
• were you taking dividends from the company?
• is the company a UK company, and does it make its profits in the UK?

I am trying to understand what it is that led to substantial penalties being charged on you, because if you were not registered for self assessment, and didn't actually owe any tax, then any penalty should be trivial. Your circumstances sound more like a self employed person who has failed to file accounts for some years, and HMRC just assume ever escalating profits, tax, interest and penalties. But if you were working for a limited company, that isn't the issue.

Who operated the company payroll? Was the accountant involved? It seems that the accountant dealt with the corporation tax, but what does your letter of engagement say? Did it cover your personal tax as well as the company's tax?

Your circumstances need exploring because, as things stand, there is clearly something missing from the story.

youcangetholdofjules

Ok answers to your questions as follows:

• were you paying the correct PAYE and national insurance on your salary? The company as your employer is required to collect tax on your salary etc and hand it over to HMRC monthly

(Me) - Yes

• what has being an expat got to do with your tax liability? Were you non-UK resident, or non-UK domiciled?

(Me) - only mentioned to illustrate a point that I am not alone in falling into this hole - I struggle to understand exactly who is responsible for informing me of my obligations - HMRC DID NOT DO THIS. Whilst I am bitterly disappointed with the performance of my accountant, I cant actually see that its their job to do this - why I say that is that I often have multiple engagements and I am forced to use other accountants/umbrella companies temporarily - none of which know of the existence of my other engagements, and the tax is done on the total of my profits - HMRC sees all, so it should be them who inform me that I am over a threshold. 

• were you taking dividends from the company?

(Me) - Yes

• is the company a UK company, and does it make its profits in the UK?

(Me) - Yes

Jeremy535897

It is not HMRC's responsibility to tell you whether you need to register for self assessment or not. There isn't anything that automatically triggers a request to complete a self assessment tax return. HMRC does not "see all", at least not in a way that then leads to the issue of a requirement to complete a self assessment tax return. If it did, we wouldn't need self assessment tax returns. That is why HMRC produces the app that tells you whether you need to complete one, which was contained in my earlier link.

It is not your accountant's responsibility to deal with your self assessment tax returns unless you engaged them to act for you personally. If you had several separate engagements via different umbrella companies and were getting the benefit of several personal allowances and/or basic rate bands, you would have had a substantial liability building up, but I am just guessing.

Whilst the accountant's advice was technically correct, in that you can only be charged the penalties that apply to the late filing of returns once they are overdue (and they can't become overdue until some time after you have been asked to complete them), as I said earlier, interest and penalties are also charged on the late payment of tax, whether you have been asked to file a return or not. Having said all of that, I'm a bit surprised that the accountant didn't raise the issue some time ago, but your reference to using a different accountant for each engagement may explain this, if none of them saw anything but a small part of the overall picture.

youcangetholdofjules

Yep - the liability is well into 5 figures. Half of that it the tax, the other half is fines and interest. 

My accountant claims he did inform me of self assessment - but merely mentioning the words "Self Assessment" does not constitute informing me, their precise wording in the letter of engagement is:

"We also apply for online access to the Vat/Paye/Self Assessment and Corporation tax records".

Which could be interpretted in one of several different ways, the way I read it was not that they would apply for access - not for the item itself - and it strikes me as odd that 3 of those relate to the LLC whilst the other relates to my personal situation. 

At no other point is Self Assessment mentioned. 

In my native country, as a business owner there I am sent a letter by the tax department whichclearly outlines the criteria under which I need to file a return, and exactly which return I need to file.(eg personal return, company owner return etc) - really clear, really easy to understand. HMRC does not do this, but my god are they waiting at the bottom of the cliff with a big stick to beat you with when you haplessly stumble over the edge and realise you are in rather a lot of trouble. 

Jeremy535897

HMRC's systems are nowhere near being able to establish whether an individual taxpayer needs to complete a tax return. The Making Tax Digital programme for income tax, originally due in 2019, has recently been delayed until at least 2026. Once they do issue one, you will be issued them annually until you no longer need them, and again the onus is on you to tell HMRC you no longer need them.

It seems odd that your accountant would inform you of self assessment, without asking if you wanted them to complete your return. Did you take any advice when clearing up the liabilities, filing the returns and agreeing what penalties were due?