to be considering reporting someone for tax avoidance

[chloesbaby]

A friend of a friend, who I have known for years but have never become close to, has been self employed for about 15 years since having kids.
She is a private tutor. I have recently found out from my friend that she has NEVER registered as self employed and doesn't pay tax.
She earns about 30K, her kids go to private school and they have a really nice lifestyle (she shops at Jigsaw, Jaeger, etc).
I am absolutely fuming, esp as I am also self employed and would never consider doing something like this.
What would you do?

OP, just noticed that you are considering reporting this person based on hearsay. I take back what I said, I wouldn't report anything to HMRC just based on hearsay. Your friend is a gossip and may well be embellishing the story. Perhaps your friend is jealous of this woman so is trying to stir things up for her. Is that possible?

Interesting one for me, this.

Dh and I both work and pay tax (PAYE) on about £60k of income. He flogs his guts out working in an inner city school, I have a less stressful/meaningful corporate job.

Dh also tops this up with tutoring work in the evening (the income p.a. of which is approx £3k), which he doesn't declare.

I am aware he should declare it, but it feels ... alright (?) that he doesn't. The forthcoming 5% pay cut doubles that feeling.

Would never consider benefit fraud, so I don't know why we think that tax evasion is ok.

£30k is just cheeky, though. If that is the amount. But DH earns £25/hr, so it is well within the realms of credibility that that could be extrapolated to £30k a year. I am curious how she can tutor children FT, though: surely they are in school?

Druzhok, I guess it's because benefit fraud requires some active deception, where as what your DH is doing is just not declaring the income, so it's by omission, which doesn't feel quite so bad.

I don't think benefit fraud necessarily requires active deception. You can "forget" to let the council know that your partner for example has moved in. Does not make it any more acceptable than actively giving wrong information - it is still a criminal offence as is tax evasion, does not matter if it is £30K or £3K.

Yes, take both those points.

I must say, the additional income is a godsend for us; in fact, it's an essential. That is the real acid test. If I wouldn't miss the tax, I would pay it without a second thought. But when I would miss it (and tax and NI adds up to about 50%), I have zero motivation to sort it out.

HOw the hell can we earn £60k and not have enough money? God. We are anything but extravagant. Mortgage and childcare, I suppose. That's £2k a month.

'Scaryteacher you are by law required to complete a tax return if you earn income from property. You must complete the self asesssment even if you are not in profit. If you also pay paye you could reduce your tax liabilty.'

I wasn't aware that I had said that I didn't complete a return each year. I just said that I paid no tax on my income from property as there are various expenses that I can write off against that income to reduce my overall liability...and I would know this because...I've read the rules and follow them when I complete my and dh's return each year. You are extrapolating something untrue (that I don't complete a return) from what I have written; much like the OP is doing with listening to unsubstantiated gossip.

Please do not give incorrect advice either. It is not possible to use your overall losses to reduce a PAYE liability unless you are doing furnished lettings/holiday lets for a certain number of days per year. I let my family home on an ast unfurnished basis, so cannot use losses to reduce dh's paye liability.

Edam: 'Tax feels different as you won't be left without the means to feed or house your children while you are investigated.' Well, it depends if HMRC apply to make you bankrupt (they do this frequently), and freeze your bank accounts or not really. I don't think people actually realise the sweeping powers that HMRC possess to totally fuck up a life until it is all sorted once they start an investigation. They can turn up at your door at 0500 without warning, demand entry, and you have to admit them. The legislation over the past few years has meant that more and more power has devolved to HMRC.

Druzhok - I'm sure it's possible to earn £60k between two people and not feel well off. Doesn't mean it's OK not to declare income though, I'm afraid...

Scary, well yes, but the revenue has to have powers to investigate ne'er do wells. But IF the facts stated in the OP were true, the woman would still have her husband's income while the investigation was going on.

They would investigate him as well and go through their joint affairs with a fine tooth comb.

And even the children's bank accounts, apparently.

"If I wouldn't miss the tax, I would pay it without a second thought."

Druzhok, I can't believe there's anyone out there who "wouldn't miss the tax". I certainly "miss" the money I pay in tax but I pay it ... cos if I don't it's illegal and unfair on others who do.

am impressed you were honest on here though!

Scareyteacher, I am an Inspector of Taxes and it is utterly untrue that we go round and force entry into people's houses at 5am or go round making people bankrupt for the sake of it. If people refuse to pay tax they have to take the chance of investigation and having to pay it back with penalties but bankruptcy or other legal remedies only follow as a very last resort.

I always treat people fairly and politely, and endeavour to treat the customer fairly and frankly it sometimes feels that we work with our hands tied behind our backs. In most cases we negotiate settlements without resorting to formal powers. Even if people evade tax they are very unlikely to be prosecuted unless it is a huge amount - generally it is dealt with as a civil matter and very few cases are prosecuted in court.

OP if you suspect that someone is evading tax by all means report them, but it obviously helps if you have evidence. Generally HMRC will act if it has evidence from other sources as well.

"It is utterly untrue that we go round and force entry into people's houses at 5am" you could legally do it though if you wanted to couldn't you?

I couldn't report someone, unless it was a child protection matter. My opinion is that I don't believe people's bravado, and therefore there is the possibility that they are talking rubbish. And who would tell others they aren't paying tax anyway?

I said 'HMRC apply to make you bankrupt (they do this frequently),' having read an interview with the HMRC guy in charge of this in which he admitted that there had been an increase in HMRC applying for bankruptcy when people who owed tax couldn't find the money immediately. Furthermore in the interview he confirmed that financial legislation has transferred sweeping powers to the Revenue that enabled them to turn up on doorsteps without warning, and reading the legislation this is certainly confirmed. Each Finance Act seems to give HMRC more power.

Under the legislation HMRC could consider that the lady mentioned by the OP is conducting a business from her premises and turn up without warning as long as a senior officer of the Revenue has authorised this. I also said you could demand entry, I didn't say you forced it, and you are certainly able to turn up at o' crack sparrow to catch some one in.

You may personally treat people kindly, but that is not the general impression one is left with by the Revenue, apart from the nice ladies at the PD in Cardiff who deal with dh's tax.

I would like to read that interview, scaryteacher. What would HMRC's motivation be in making anyone bankrupt? They'll forfeit any tax they would be able to get from the person and, if bankruptcy is the only option, it's unlikely the taxpayer has got any savings or equity in their house to collect on that. Obviously taxpayer bankruptcy happens at times but to say that they do this frequently sounds like an overreaction to me.

Also, HMRC can show up on your doorstep but you don't have to let them in. EVER!!! They don't have the right to force entry and, even if you let them in, can ask them leave at any time, which they must do. Also, they don't have the right to search for anything once they are inside but only inspect things that are out in the open.

I thought they have the right to enter and search whatever they want to?

More detail about their inspection and entry powers can be found here: www.hmrc.gov.uk/manuals/chmanual/CH25120.htm

sorry, forgot how to do links www.hmrc.gov.uk/manuals/chmanual/CH25120.htm

Perhaps op could change her mn name to Bertie Smalls?

Scareyteacher - you are taking journalistic spin at face value I think. It is utter rubbish that HMRC rushes to bankruptcy - I used to work in collections and it was absolutely a last resort - because frankly it is in our interest to get the money that is owed. Normally we bend over bankwards to give the taxpayer time to pay, unfortunately some businesses are simply not viable and use the tax money to fund their lifestyle or business and there is no choice.

Re Mingg, (the other poster) about HMRC powers. There are powers which are necessary for example to fight missing trader (carousel) fraud or other criminal cases but they are simply not an option in the vast majority of cases. The powers are available to be used in extreme cases only where serious crime is suspected. HMRC is a large organisation and the legislation is broad and has to cover a lot of scenarios but that doesn't mean that in practice we can use it for every case. In a situation like the OP mentioned we would try to help the taxpayer be compliant for the future and pay back the tax she owes by a process of negotiation - we certainly would not turn up on her doorstep at 5am unannounced and expect her to co-operate, what purpose would that serve? Scaremongering rubbish!

YABU. Everyone has broken the law whether it's the speed limit,drinking underage or dropping litter (which I find really offensive) I'm sure you haven't led a perfect life.
Dubbing people is a slippery slope to Big Brother if you ask me.I would only do it is against humanity (child abuse etc) rather than aginst the law.

Grovemum, the EF5 guidance on the HMRC website suggests a very specific timescale for bankruptcy. If that is incorrect, why is it up there?

I also have to take issue with you on the powers not being an option. The legislation is drafted with great care, passed through Parliament as Finance Acts, amended by SIs where necessary, so although you may choose not to use the powers you have in every case, it doesn't follow that you can't use them. They are there, on the statute book and presumably there for a reason. I don't buy the 'legislation is broad' line either. It will have been very carefully written with no wriggle room, and as I know, the minute a loophole is found with legislation, an SI is issued to deal with that.

Scaryteacher, EF5 guidance is a leaflet HMRC can send out to defaulting taxpayers to warn them of the possibility of making them bankrupt. I have dealt with HMRC enquiries into both private individuals and companies for a few years now and have never seen the leaflet being sent out. Based on my own experience I would therefore say that it's definitely the last resort. The banks can apply to make people bankrupt as well, so can other creditors. All the EF5 leaflet does is inform the person what would happen if the application was made. HMRC doesn't have any more power to force someone into bankruptcy than any other legitimate creditor.

As far as the HMRC powers are concerned then I must agree with Grovemum that we're talking about a journalistic spin here, not the facts. She's right in telling you that HMRC has right of entry in criminal cases - this does not mean someone fiddling the tax but large scale fraud, money laundering etc. In normal civil cases the HMRC has no more right of entry than a door-to-door salesman as the link I posted before shows. By the way, the link is to the HMRC investigations manual which means this is the way they need to behave - they do not have an option of taking a section in legislation out of context and state that it gives them rights that are not there.

Grovemum - thanks. I just wanted to clarify that because I used to work for a tax planning company and we were constantly told to keep all our clients' records in perfect order in case any of them got investigated "as HMRC can enter at will anytime!!!". I appreciate that entering at will is of course optional and as you said in a case like this turning up on someone's doorstep at 5am unannounced expecting co-operation would not serve any purpose.

Well someone very close to me just last week asked me whether I wanted to avoid paying too much tax. Apparently she is doing some PR (she is self employed, on benefits and also avoiding tax via some dodgy accountants) for a charitable organisation. The way it works is that interested parties would inform their employers that they wished to donate some money and then they would set an amount of say £1000 which would then reduce their tax bracket. The charitable organisation would then benefit from the governments 28% contribution. Now here's the extremely dodgy part, the charity would then give you back the £1000 you donated and pocket the government contribution..... I was completely taken aback by this. I was then asked if I wanted to do that and politely said HELL NO... I am very happy to pay my taxes thanks and to keep things above board. I did tell them that it seemed highly fraudulent to me.

While I think tax evasion is wrong, I would not be in a position to report it as it is not my business. It will only be a matter of time before they get caught. I was a bit miffed about it though tbh