Huge tax bill

[lolacoxox]

In need of some advice please - my boyfriend has his own company and has had it for a few years. He works alone so no team. He has never payed tax and has always said he would sort it so believed him and stupidly asked no questions.

We own a house together and have a child on the way.

He has now got an accountant to sort his taxes out for him and it turns out he owns £40,000!!!

I am beside myself with worry. Cannot pay this and don't know our options. I'm so mad. Any advice welcome please.

Good luck OP. How does your DH get on with his accountant? He may need to lean on them heavily while he learns the ropes himself. Sticking my neck out, a decent accountant will start off by saving their fee in allowances or offsets that you wouldn't even think about, so worrying about paying them is needless. Has all this arisen because he's realised he needs to file a self-assessment return by this week's deadline? It's not clear whether he's already had a demand from HMRC, or if his accountant has told him to expect one when he files - might they advise on how best to approach making an arrangement?

I wish you both well.
Tax is hard for a sole trader… I would suggest find an accountant who may be able to set you up with some software too.

Op hasn't answered enough questions for anyone to be able to give meaningful advice. £40k is indeed a lot of money. For what? Over how long? That does sound odd to me. Is he a sole trader, a ltd company. Over which period is this £40k owed? I'd be ringing HMRC aswell!

Not all self employed people have substantial expenses. DP is a labour only subcontractor so doesn't buy any materials. Also most of his travel and subsistence is covered by his clients.

He has some residual travel expenses, professional qualifications, which aren't very much, and a small amount of equipment so very different to if he was a tradesman supplying building materials etc.

The accountant should have deducted any allowable expenses before arriving at the £40k liability, but I suppose it does depend on how much time has been put into determining what these are if receipts have been lost.

£40k of tax though.

If it's a short time, that's a lot of income and clearly it should cross someone's mind that tax needs to be paid.

It's hard but it's not something you can forget about until a £40k tax bill arrives.

He's not had anything paid into his business account that shouldn't be e.g your salary.
He needs to ask his accountant what % of income he needs to.put in a separate account for tax.
Hopefully he takes pension contributions more seriously than tax.

What a huge mess. You need to speak to the accountant yourself OP. He's proven he's not capable and will now be panicking on top of it all. You may then want a second opinion from a different accountant on how to approach HMRC.

I don't think he needs to incur accountants fees to ask how much to put aside for tax. Assuming he's self employed he knows the tax rates like everyone else does.

The good thing is at least he can start saving for the current tax year now you know about itc

Another thought, given that he had his eye off the ball. Has he been chasing invoices efficiently and collecting in all the client money that he could?

@DreamW3aver That's really not how it works. There are different rates for dividends etc depending on how he's taking money out of the business. People really shouldn't give legal/tax advice when they don't have any idea how it works.

It's not tight for a one person business, the vast majority have far less in the bank than that.

Nothing comes up that would take 40k at once, except bad tax management.

Remember you've been living well over your actual means - he doesn't have the money to pay the tax because you've spent it (you and him not you personally). So some belt tightening will be needed.

Say his "company" makes 70k a year. You've all been spending that 70k thinking that's what he brings in. But he doesn't. He brings in, say, 50k

I'm not giving legal advice, I clearly said assuming he's self employed he's not going to go wrong by putting aside an amount of tax equal to the appropriate rate on his income.

In what circumstances could that lead to him being short at the end?

If he ignores his personal allowance that'll cover his national insurance etc. it's just an easy way for him to put enough aside.

Even if the £40k tax is only from two years he's not a mega earner

If he’s earnt enough to pay £40k tax but has no savings to cover the bill he presumably also hasn’t been paying into a pension. Food for thought for the future once the tax has been paid. Being self employed he needs to be more financially savvy than it sounds like he’s been the last few years.

Does the £40k include Payments on account?
If not then he will be in for an even bigger surprise.
I’d be worried about what other business mistakes he’s made if he didn’t even know he had to register with hmrc.

As for a PP who said Tax was ‘hard’ as a sole trader, it’s really not and if you use accounting software, which is often free with a business bank account, it’s very, very easy.

I'm not surprised you are mad OP! How could he be so stupid?! How did he think he was getting away with paying no tax?!

Still, he must be earning a decent salary if he owes so much tax.

I would not be trusting him with anything financial in future though if burying his head in the sand is his default. Make sure you keep your own financial independence OP.

https://www.thedirectorshelpline.org/about/

What about these accounting packages that get advertised on TV?