Serious tax problems

[Boppy]

Regular poster with a name change for anonymity!

A friend of mine is in a sticky situation with inland revenue.

She used to be a director of a small company. Her Dp did all the financial stuff. They had a tough couple of years, and the business went under in 2004 (w/o filing that years tax return). The way that people do when they are having a hard time, they kind of ignored the letters, moved house and hoped it would go away. Her Dp has since died. Out of the blue, the revenue have caught up with her chasing the overdue returns since 2004, payment of their estimated tax bill, interest payments and a whopping ?1000 fine for being so overdue. She want to straighten things up now, as best as she can. Can tax savvy mumsnetters help me advise her?

1. She has no idea where the accounts are. I'm recommending that she get in touch with her bank for copies of the bank statements over that period, and try to reconstruct the tax return. Will that be sufficient, or is she likely to be fined for inadequate records?

I guess we could approach some of the suppliers to see if they have copies of invoices... keep rummaging through drawers to try to make sense of what paperwork there is...

I'm struggling for ideas if the original accounts are totally lost and records patchy.

2. What are the chances for success of an appeal against the fines on the basis of her being an unemployed single mum with no money in any case, that the business went under loss making, or that they messed up and they're very sorry? Until recently she'd had an arrangement to pay the revenue a small sum each month. Not sure which tax bill this related to. What can we do to improve the chances of success?

3. How far will they chase her for the money? She's trying hard to straighten her life out - I think going bankrupt would knock her. Could it get any worse than bankruptcy?

Help v. v. much appreciated!

Bumping for you!

If no one answers then I suggest she contacts citizen advice and see if they can help.
Hope she can sort it out.

Who compiled the annual accounts?

Did they ever use an accountant, did they have any business loans or did anyone get involved when the business was wound down (bank perhaps ?). She probably needs to see a Business Tax specialist with any paperwork she may have but the CAB may be able to find someone to help her intially. The IR have all sorts of powers so don't know what they could throw at her but don't think they'll accept ignorance and denial as an excuse

Grounds for reasonable excuse

They used to have an accountant who put things together at the year end... suspect it may have gone to the wall with everything else in that last year.... worth checking who they are and what they have I guess.

They had a bank o/d facility rather than a loan from what I know. Do you think the bank would have useful information retained on file? Should we write to them to ask? Can we do this under data protection act - or is that only applicable to individuals?

Business tax specialist sounds expensive . I'm starting to see why she buried her head in the sand for so long over this.

Thanks Kenneth... those 'reasonable excuses' don't sound all that promising unfortunately.

What a cock up

bump.

Would it be worth going to the revenue to discuss it in person? How much discretion/compassion do they have?

Well, first of all are we talking about a limited company? And if so is the IR chasing the limited company or her as an individual? You refer to her as a director which typically implies that there is a company. If so this will probably end up helping her in the long run, though it does mean that she is dealing with corporation tax and really does need an accountant (if only because there will also be issues with Companies House).

The Revenue do have some discretion but they really don't tend to dole it out when their letters are ignored (and from what you are saying little contact was made for quite some time).

In terms of her specific questions:

1. She needs to contact her accountant for accounts. Bank records are a start but she will need to have sufficient records to prepare accounts on which an accountant would be prepared to sign as being true and fair. If this is a company she can look for copies of filed accounts at Companies house (if they were prepared and filed that is).

2. Once the fine has been issued, I would guess that an appeal would be slim but it does depend on whether we are talking about company or individual.

1. In the worst case then the Revenue can and do prosecute (and a custodial sentence may follow). But that is rare. Is it still her local IR office dealing with it or has it been referred to Special Compliance Office?

She will need to meet with the Revenue but she really needs professional advice.

Boppy, I wouldn't worry too much about the lack of invoices etc. - we have done our own annual accounts a few times (when we've had very little business activity) and are horrendous at keeping our paperwork in one place so just about everything was reconstructed from bank statements. All that gets sent to the IR is a few sheets you (or your accountant) compile yourselves, no bank statements or invoices.
Could she look at copies of previous annual accounts online and maybe reconstruct the accounts for the missing year, using the old ones as a guideline?

I'm afraid they are very stern about the fines.

She was a sole trader. Does this mean she can sign off her own accounts?

Geekgrrll - how do you deal with gaps in paperwork in a way which is compliant?

If she is not incorporated then she won't need her accounts to be audited. But that does mean that the statement "She used to be a director of a small company" is fairly inaccurate? And the reason that I would advise getting an accountant is that that sort of misunderstanding may have significant ramifications when talking to a tax inspector.

If she wasn't actually trading for a particular period and kept a business bank account separate from her main account, then there will probably be relatively few transactions which need to be included in the accounts, and most of these transactions can be supported by the information in bank statements.

Was her business VAT registered?

When did she last file her return? You mention a £1,000 fine for 2004 - what about 2005?

So she wasn't a director of a small company at all but a sole trader? Big difference. Copies of bank statements might help show income. The buseinss cannot have gone under, can it because she was the business. If it were a company which went under then its tax liabilities go with it or is this investigation of the personal tax due by a director of a commpany which went under?

Haven't had a chance to read all of this but ask her to get in touch with TAXAID. I met somebody a few years ago who had worked for them and she was ex bigfirm so I think they have some serious specialists - Good Luck

boppy, I don't know anything about sole tradership.

We have a very friendly accountant, if you CAT me I'll give you his details? I am sure he would be able to help ou friend sort this out, he's been great at handling our mess.

Thank you for the 'food for thought', ladies. Things to think about. Appreciate you putting in the time to advise.

I think I'll recomend get in touch with Taxaid (may follow up on your offer later geekgrrl - prob she'd first prefer to go the 'no cost' port of call, seeing as she has no money).

Just so that it's gone like this for them. If her Dp hadn't died when he did, it would have been sloppy but OK... he would have filed when the revenue started chasing. Without him - and with the radio silence period for mourning - it is such a big and such an old mess.