Concerned my friend my be committing benefit fraud?

[ED94]

Hi,

Apologies for the patchy details but I am very concerned that what my friend has been doing is benefits fraud and I would like advice on how to handle it. I understand my friend is not going to get any sympathy here but I am very concerned about what might happen to her child if she gets found out.

My friend has been claiming universal credit for about a year. I think she gets about £1.6k a month.

In January she set up a business. I don't know exactly how much she makes but my conservative estimate is about £2,500 a month after expenses but could well be much higher.

After a couple of months I mentioned she needed to inform DWP about her new business so they could calculate whether she was still entitled to UC.

She told me she would.

Today she called me and said HMRC had sent her a letter saying her tax returns were late.

Apparently, she hasn't declared any income from her business nor has she contacted DWP/UC people to tell them she has a business that she is getting income from!

I have done a bit of research and so far I can only see 3 options.

1. Call DWP explain, agree to pay back the over payments and arrange a payment plan.

1. Lie on tax return which could well be found out. Possibly prosecuted for tax evasion resulting in a £5k fine and/or 6 months prison + criminal record. Banned from travel America + Australia where she has family.

1. Truthful on tax return and wait to see what happens. I am not sure what would happen here. What are the chances someone will notice she is on UC that she is not entitled to? From my research she could be investigated for benefit fraud, which, while not as bad as tax evasion, she could still get a criminal record, have her benefits stopped for up to 3 years and receive up to £5k fine and be forced to pay back all the overpayments.

Am I right in thinking these are the only options?

I am going to advise her she has to call DWP to explain and maybe set up a payment plan to pay back the over payments. The problem is I know she will likely not do this as she has problems facing up to her mistake. I worry she will just try to sweep it under the rug, and possibly lie on her tax return in the hope of not getting caught.

Any advice would be appreciated.

Thank you

Well yes it is benefit fraud. As a self employed person on Uc she should have reported her self employment and declared income monthly. She is going to owe back a lot of money.

She needs to tell DWP asap, and repay her overpaid UC. She may have a penalty to pay. If she does it soon, i would say prosecution is unlikely.

But something isn't right here - if she only started in january, her tax return for self-employment can't be late. It isn't due until 31 Jan 2022. Does she fill in a tax return for other reasons? HMRC would only issue a tax return if she had declared she started self-employment or she was already in self-assessment. A tax return could only be late now if it was relating to 19/20.

@Babyroobs That is what I thought. I am going to do my best to convince her the best thing is to come clean asap

@daffyluck Thank you for your reply. I have to admit I have only ever been PAYE so I don't understand all this tax returns & benefits stuff.

Regarding the dates not matching for the tax return. I had a quick think and I remembered she registered a business a couple of years ago. She never did anything with it as she fell pregnant soon after. It never made any money but I can see it is still listed as active on company house. Could this be why she was contacted by HMRC?

If it is listed on companies house, then she is a director of a limited company. That is very messy - there are all sorts of requirements to deal with via companies house and HMRC. Why did she set up a limited company? Yes, she needs to be completing tax returns. She will be racking up hefty penalties if she hasn't. She also needs to take steps to close down the limited company properly if she isn't trading.
And then she needs to sort out this new business separately if she is self-employed as a sole trader.

@daffyluck Oh dear. Thank you for explaining. I have no clue why she set up a limited company. The last filing history is from May of last year. She made a statement of capital and listed assets of £100. No clue what it is about.

I don't know if with this current venture she is a sole trader. Initially it was just her but as the business expanded she has taken on 2 part time members of staff to help her.

I've found her current company on Companies House as well. All that is listed is:
Incorporation
Statement of capital on XX-01-21
GBP 100

Lots of people set up limited companies as they think it makes them appear more reliable.
Completley ignorant of the tax and ongoing issues

She is a director of 2 active companies, has 2 employees and you reckon she makes at least £30,000 per year. Sounds to me as if she knows exactly what she is doing. It's not a mistake. She told you she would inform DWP to placate you. Sorry if that's not what you want to hear.

Meanwhile, Billionaire Jeff Bezos is flying his cock into space. We live in a world where some have too little and others have too much.

@MrsSquirrel I think you may be right but I do want to give her the benefit of the doubt. If she doesn't agree to come clean to HMRC/DWP immediately, I will wash my hands of it all.

[quote ED94]@daffyluck Oh dear. Thank you for explaining. I have no clue why she set up a limited company. The last filing history is from May of last year. She made a statement of capital and listed assets of £100. No clue what it is about.

I don't know if with this current venture she is a sole trader. Initially it was just her but as the business expanded she has taken on 2 part time members of staff to help her.[/quote]
Well then she is in even more trouble. If she is employing people - are they employed or self-employed? It isn't a choice, it is based on the facts. She can't just say they are self-employed - if they are employees under her control then she may need to register as an employer and be running a payroll as well. On top of that there are a range of employment law obligations as an employer.

It will all catch up with her if she doesn't take steps to sort things out - sounds like she does know what she is doing and has made a choice not to do things legally.

She should talk to an accountant as soon as possible.

Any chance she could be exaggerating the income? Sounds a bit MLM to me!

Merely registering as self employed triggers the need to do a tax return until you tell them you are not. That's why they may be chasing her for the overdue tax return for the SE work that never went anywhere.

But if she has a limited company, she is an employee of that company, so she could be this too. If she's doing that and employing staff, she probably needs an accountant.

But you seem to know an awful lot about her income and what's going into her bank account? With limited companies especially, it's not always that straightforward, due to dividends and the money belonging to the business not the individual.

Just because the business has a certain income, this doesn't necessarily translate into a high income for the owner. They obviously have costs (employees, stock, rent, rates etc, travel, IT etc) and in the early years in particular, a lot of the income is reinvested into the business.

Her business hasn't been trading very long so I wouldn't expect her to have had to do a tax return yet.
I agree with others that if she's got a limited company and is employing others she isn't actually as dim as you seem to think.
Also the turnover of the business is not likely to be what she is taking home and she
could be exaggerating to big herself up. So actually she may still qualify for UC.
Many self employed people claim benefits when they start out because they hardly get any income to start with.
I don't think you know enough about the situation to be sure of what is going on.

* She is a director of 2 active companies, has 2 employees and you reckon she makes at least £30,000 per year. Sounds to me as if she knows exactly what she is doing. It's not a mistake. She told you she would inform DWP to placate you. Sorry if that's not what you want to hear.*

^This.

Why would HMRC be sending her a letter about a late tax return?

With limited companies especially, it's not always that straightforward, due to dividends and the money belonging to the business not the individual.

This. A company and a person are two separate legal entities therefore, even if her company was making 10k a month, its only what she chooses to pay herself that counts towards UC. I’m fairly sure that’s how it works.

As a DWP employee of 32 years.. I will tell you that your friend should simply close her claim. Go on line to her journal and say that she no longer wishes to claim.

I doubt anything will happen. Since the government directed DWP to stop checking IDs and verifying rents during last years lockdown - our level of fraud is so far above any member of the public's understanding - that the chances of us getting round to dealing with your friends fraud is minimal. We simply don't have the capacity.
No one who started a business this January needs to do a return this year.. Tell her to close the claim and thank her lucky stars she has probably got away with it.

You seem a little over invested in this , to the point you are checking companies House. Unless this directly affects you I think you need to stop.
All you can do is warn her that she'll end up in trouble, then leave well alone .
She will get found out in the end .

From what you've said thwv1st company has never traded and is dormant. She needs to let HMRC know this. www.gov.uk/dormant-company/dormant-for-corporation-tax

Just because she set up a 2nd company doesn't mean she is trading through it. It may be dormant too unless she is issuing invoices in the name of the company rather than her own name, but tax returns wouldn't be due yet. If she is using the company to trade then she either needs a PAYE scheme to receive her regular income, or be paid in dividends as a lump sum. Is she drawing a regular income as pay and if so has she set up an employer scheme. If not she could get in trouble for failing to declare and pay over tax and national insurance contributions. If she is a sole trader her tax returns aren't due yet
However she is running her business she needs to make a declaration asap re her UC claim and sort out with HMRC which companies are dormant and register for self assessment as a director or sole trader. Making a voluntary disclosure will be far better than having any failure investigated as a discovery by either HMRC or the benefits office. If she's new to all this they will help her sort it all out.

@Toilenstripes

Meanwhile, Billionaire Jeff Bezos is flying his cock into space. We live in a world where some have too little and others have too much.

But this woman is getting a really decent amount of money from universal credit and yet isn't declaring income. I don't think she's someone to be sorry for.

@SpaceRaiders

With limited companies especially, it's not always that straightforward, due to dividends and the money belonging to the business not the individual.

This. A company and a person are two separate legal entities therefore, even if her company was making 10k a month, its only what she chooses to pay herself that counts towards UC. I’m fairly sure that’s how it works.

@SpaceRaiders that's not correct for UC. UC have a look through provision that ignores the limited company structure.

@daffyluck I knew someone more knowledgeable would come along and clear it up.

You're totally over invested. Researching her companies on companies house

The only thing you need to do is take a step back and let her handle her own affairs. Like pp's have pointed out, being a Director of two Ltd companies with employees and a decent income - it's unlikely that she needs your help or advice here in all honestly.