DH's Tax returns way over due - DH insolvent - Account withholding work against payment of fees

[Alliwantisaroomsomewhere]

DH is for all intents and purposes insolvent, though we (I!) have not done the paperwork yet.

DH has been fined £400 by HMRC because his tax returns for 09/10 are outstanding. DH and a previous work partner had an LLP and it is these tax returns that are outstanding.

Bottom line is neither DH nor I know how to do it, and with it being an LLP's tax return, too that is outstanding, things are even more complicated.

Accountant has all the info we need and will do the tax returns for DH and the LLP, but will only do so on payment of the outstanding bill.

DH cannot pay the bill because he does not have the money to do so and also to do so would be to defraud other creditors, as far as I am aware.

So we are stuck. Any idea as to what the fuck I can do? DH gets paralysed with worry and lands up doing nothing. So I am trying to sort it out.

If I had £3500 then all this would be swooshed away but I don't have it and we are stuck. I would be very grateful for any advice.

[thereinmadnesslies]

Have you spoken to your tax office? I know it is slightly different, but when my father died there was a lot of outstanding tax stuff plus the probate forms, and one of the tax officers in the local office talked me through all of it. It took a few phone calls but he was really patient and helpful. He also was able to sort out that sone of the fines were waived.
Honestly, the forms are not too bad ... could you try to do them?

[ChasingSquirrels]

Talk to the tax office - but the will returns need doing (and there are 2 that are outstanding - both the LLP and your DH's).

The accountant is not at all unreasonably in not doing the work until he is paid (which they presumably know they won't be) and in withholding the records as a lien until they get paid - but without these records you are going to find it difficult to do it yourself.

I have no idea how the insolvency would impact on the fines?

Are your talking to an Insolvency Practitioner?

[Alliwantisaroomsomewhere]

Thanks, Therein and Chasing. I called the tax office and they said that they want the returns - anything else is nothing to do with them (this was told to me kindly and politely!)

So I will try to get an appointment with CAB to see what we can do. Otherwise - do I just get copies of the bank statements for the LLP and see if I can do it from there? I know that they had no profit. And definitely did not earn any salary.

[ChasingSquirrels]

do you have copies of the previous year accounts and tax returns for the LLP and DH?

Yes, the bank statements would be a start, although the bank will charge you for copy statements - if you have internet banking it would be quicker, easier and cheaper to download them.


LLP's are taxed as partnerships, so it will be the accounts for the year that end in the period 6 April 09 - 5 April 10, not the tax year (unless it is property investment, or hmm, LLP tax knowledge falls down a bit here - I only do one) UNLESS it is still in the opening years rules.
You then allocate the profit (or loss) to each partner on the LLP return and then take those figures onto your DH's return.

When did the business cease, if it is in 09/10 then you will need to do closing rules, and do the accounts to the point of cessation. If it is in 10/11 then you will also need returns for that year (due 31 Jan 12) and if in 11/12 then you will need those returns as well (but you can't do those until after 5 April 2012).

[Alliwantisaroomsomewhere]

Thanks a million, Chasing! They ceased trading in Jan 2010. I am not sure where the old tax return is but will ask DH. It was such a difficult time for us and still remains a very sore point for DH (and me, if truth be told). I reckon that it is all probably long lost and gone and I will have to start all over again.

I'd be happy to pay the few quid for copies of the bank statements, though.

[vj32]

Is your accountant any good? If they are I would find the money (credit card?) to pay them, as it is likely they will be able to find all the little loopholes that will save you money. Would they accept a partial payment? If a tax refund is owed then they could directly take that from the revenue (apparently).

[Alliwantisaroomsomewhere]

VJ32, thanks for the advice but we are skint. Completely. Also, with DH going insolvent, if he pays one creditor over another that could count against his application - cannot remember the technical term.

No idea if there would be any refund. Also, if there was, then it would be split between the 2 partners and I would not see any of it, so that would probably not be the best idea. But any advice is welcome so thousand thanks.

[mranchovy]

I can't give you specific advice, but some of the things you should consider are:

1. You need to separate in your mind the tax and financial position of the LLP from the tax and financial position of your DH. They both need sorting, but not at the same time and not in the same way.
   

1. Don't hold your hopes out for the CAB - they don't get involved in matters resulting from business activity.
   

1. Your DH needs to file his personal tax return straight away, and is not prevented from doing so by the lack of LLP accounts - you can enter the share of LLP profits as nil and in the box that asks whether any of the information is estimated or provisional explain that the LLP ceased trading in July 2010 as it was not trading profitably, and that it has not produced accounts for the final trading period.
   

1. If your DH took any money out of the LLP (drawings, 'salary', profit share etc.) in the final trading period, put that in as the share of LLP profit instead of £0 and again explain what you have done in the 'estimated or provisional' box - you will pay tax on this of course.
   

1. What happened to the other partner?
   

1. Are there any other creditors? There is nothing to stop your DH from paying the accountant personally if you think that she is the best person to sort it out. Bear in mind that the fees for personal tax returns are owed by the individual so she can chase you for that anyway, but the fee for an LLP that is broke is a lost cause. You may be able to negotiate the LLP fee down to very little on the basis that you pay up for the personal tax return.
   

1. If it was a company, you could just walk away from it and let HMRC and any other creditors (or companies house) wind it up but it is not wise to do that with an LLP because up to 2 previous years drawings and other payments can be clawed back - just one of the many reasons why an LLP is hardly ever an appropriate structure for a small business (who advised you that it was?)
   

1. Point out 7. to the other partner and work out a way to deal with the LLP. If you deal with it properly you will avoid the claw-back legislation referred to above.

[mranchovy]

Oh, if your DH is considering bankruptcy himself (as opposed to the LLP), the CAB may be able to help with that. Payment of the accountant's bill by him wouldn't be a problem for your DH from that point of view, although in certain circumstances it might be clawed back from the accountant.

[Alliwantisaroomsomewhere]

Thanks, mranchovy.... lots of info to digest! Thank you!

[Alliwantisaroomsomewhere]

MrA, are drawings taxable in the hands of the partner even if there was no profit in the LLP?

[mranchovy]

No, drawings aren't taxable as such, profits are but if you don't know what the profits are then the drawings can be reasonable estimate. But I have know idea whether this approach is the best in your particular circumstances.

[Alliwantisaroomsomewhere]

would you mind me PMing you ? I have a few more questions if you do not mind?

[mranchovy]

You can, but I may not be able to help.

[Alliwantisaroomsomewhere]

Thank you! I appreciate that you may not be able to help. Will mail you later today or tomorrow. Thank you.