To ask how much I've fucked up? HMRC

[ohshit89]

Self employed, done something a bit stupid.

Basically I admit that for the past 5 years of being self employed I have really no idea how much I've potentially earnt that year until my accountant sends me draft self assessments after 5th April. There are things I could do to keep better on top of this obviously but it's really never mattered that much because profits have never been massive. Because of the structure of the business currently, any profit counts as my own income for SA purposes so even though I only "pay" myself a modest amount every month, my earnings are whatever profit the business has made.

Basically business has boomed this past year, which I am not complaining about but our accountant has done my SA and I have earnt in the last tax year over 100k (and I'm talking about a jump from under 30k last year to over £130k). I really was not expecting it, I was obviously aware business had taken off but really I did not expect that. I do not "pay" myself anywhere near that sort of money per month and while the business does have a good float I certainly couldn't have extracted that all from the business for personal use.

Onto the issue...for the last tax year I have claimed free nursery hours for my son and tax free childcare. I am aware I will need to pay it back and I of course have no problems in doing so but I have obviously (unintentionally) been telling HMRC that I earn under 100k for a whole year when I have infact earnt over.

Will there be an issue? A penalty? I know i really should have an idea myself of profits and this has really shocked me into making sure I keep a better track of it but when I selected that I earnt under 100k I genuinely believed that I did.

Do I call them or will they contact me when my SA is submitted?

Not true

Business income is her income. The "salary" shes taken from the business is drawings

Lots of people blaming the accountant, but this is on OP

It's right there in opening post. OP is a sole trader

so, Self assessment and VAT are based on business income / profit, not OP's drawings from the business

There ate valid reasons for choosing to be a sole trader, not Ltd Co

And, if external Accountant only sees the books at year end (common practice) how would they be expected to know OPs income has dramatically increased?

You have a useless accountant or else you are not listening to them. Or perhaps you have a bookkeeper rather than an accountant? Either way you need a good one now to do your tax return and sort out vat.

What other business has people paying amounts that the business doesn't invoice for?

There is so much terrible advice within this thread indicating so many people have as little a clue as the OP when it comes tk business accounts and tax liability.

Make an appointment with your accountant and go through everything together.

Or an external accountant who only receives the books at tear end ie not employed by OP

OP, it's clear from this thread that nany people have v limited understanding of self employment. Please don't burn your bridges with your accountant

Not for OP. Literally. She would be substantially better off as a Ltd company.

Depends entirely on the business. For my DH there is very little difference as the dividend rates are so close to PAYE rates now and he doesn’t have much VAT to claim back each year.

I suppose it must be sole trader, yes. I know how that works.

Very odd way of referring to it though. Why not just say "I work as a sole trader" rather than go on about "business structure" and "only pay myself a modest salary" as if it's some random way of structuring a corporation!

@NeedToChangeName

OP, it's clear from this thread that nany people have v limited understanding of self employment.

the OP being one of them

I'm struggling to see when the accountant was supposed to have given this advice. In the prior year the business had little turnover, and was not vat registered. Hence, in the accountants eyes this was a once a year carrier bag job with no need for anything else.

Very fortunately this business grew massively in one year. The next time the accountant sees it is when they notice.

If the OP was paying a few hundred pounds for a once a year tax return that is the service they would have got.

Over £100k you start losing your personal allowance. You could google for a tax calculator and get a rough idea of what you'll owe, which you'll have to pay.

Then you need an accountant who does what you pay him for

I’ve already submitted one, some of us accountants are quick workers!

VAT has nothing to do with being a limited company or not, as it applies to both. With profits over £50k it’s definitely better to be limited

You just have to pay back the childcare etc claimed. I had the same once with working tax credit when I had a back payment of several years worth of underpayment. The HMRC refused to look at it spread over the 8 years so I was taxed 40% and had to pay back my tax credits. This had to be done via a payment plan because I did not have the money as I had spent the lump sum on a volunteering trip to Peru and consequently stopped the temporary job I’d been entitled to working tax credit while doing. I ended up really struggling financially but I don’t regret the trip the HMRC effectively caused me to have to pay back with money that I would have been entitled to as it would have been taxed at 20% if it had been paid correctly.

There isn’t a penalty for a pay rise or increase in business / pay the tax, pay back anything you find you aren’t entitled to and there is no issue. As long as you complete the tax forms on time.

Don’t sweat it. Be honest.

VAT returns are usually every 3 months.

OP. Please just speak to your accountant, not a MN forum

Just tell them up front. If you tell them, they will help you. As long as you're not hiding anything you'll be fine. I helped my elderly mother in law with HMRC once. She was childminding and didn't realise she had to fill in self assessment tax returns. They let me submit 6 years worth, all at once. No penalties.

Please can people who don't actually know about tax just stop giving tax advice?

Re tax free childcare, this happened to us. A couple of years ago, DH got a huge bonus which took him well beyond £100k right at the end of the tax year. I'd told HMRC all year that we would be under, because the timing of the bonus wasn't guaranteed. We just paid back the tax free childcare and funded hours. Not pleasant, but how it goes. HMRC didn't care so long as the tax was paid. I'd message them through the online service to let them know. Bigger issue is whether you have the funds to pay the tax.

Considering VAT was a good shout. Has your accountant mentioned VAT at all? Don't stress just yet, as what you do might not be VATable, but that's one to sort out asap if needed.

You say you've made over £100k profit, is that after tax deductions for what you've spent on the business? That's also one to check with your accountant.

In future, you should ask them to do more regular updates. Understanding the year to date position at regular intervals will help you to plan for any tax, eg making pension contributions.

Wow well done!
But you really need to get a better accountant that stays across things more than once a year!
Also you really need to go limited.
And I would also advise that you get more business savvy and stay on top of things!
Speaking as a business owner btw

You are really better asking your accountant. There's too much at stake to be seeking advice from random strangers on the Web. HMRC penalties can be high. You can't leave anything to chance.

You need a proper accountant and book keeper, use XERO and login in at the very least weekly.

you need to potentially go limited and VAT registered, you need to pay yourself via salary so you are keeping your NI contributions, you need to fully understand net, gross profits, personal taxs and corporation tax.

Not sure what your FY is but you could have put a huge chuck into to pensions as a company director you can pay up to £60k out of the business into a pension which reduces your corporation tax bills and saves you so much money long term.

Pay yourself a proper month salary in dividends.

in essence I also just wanted to say bloody huge congratulations OP but stay close to the money, learn you numbers, learn the rules and start to have wayyyyy more control so you don’t spend on tax that you don’t need too.

HMRC are not your issue here that’s a minor issue it’s your lack of business and money knowledge m. Please fire your accountant they should be advising you on all of these they should be your right hand person. They sound like lazy idiots.

also ensure you have full access to your gateway HMRC keep ultimate control at all times.

Would you have already submitted this particular one?