Looming tax returns: We have a problem

[exasperatedmummy]

Not sure if this is the right place to post. I am sitting here hiding from the big box of paper work that is my partners accounts from last year. I am procrastinating in a big way because we are probably going to end up with a huge bill that we can't pay.

So, two questions.

My DP is a builder and is trying to establish his own business. Last year he had some guys working for him. He paid them all cash, on the assumption that they would pay their own tax. We were a bit clueless about this, and i don't think we were supposed to do it like that. They were working for him on a very casual basis. It didn't work out, they were lazy idiots and we don't have them work for us now.

What we don't want to have to do is end up having to pay their tax!! We were idiots and didnt get receipts or invoices. I think the plan was for me to type them up for the guy as he didn't have access or couldn't manage to do them himself. But we never got round to it . So, apart from being a complete pair of idiots DP and myself! HAve we broken the law, should we just keep shtum and pay up the tax ourselves (that will be a big if not too big bill for us to afford) or is there a way i can issue retrospective invoices etc.

Im reluctant to contact the tax people about this as i don't want to get into trouble. We genuinely weren't trying to tax dodge or anything.

Also, what if we don't have the money to pay the tax bill straight away?

Bump - anyone?

Have you got a friendly local accountant who can help you with this? You might have to pay out some money for their help, but their advice may be invaluable and save many sleepless nights and an even large tax bill or worse in the future.

If you suspect you may have paid them incorrectly and you do nothing to find out for sure and fix it then you are at risk of being prosecuted for fraud, tax evasion and even money laundering. Particularly if you make financial gain from it, which you will if you don't pay the tax you should.

You probably should have got involved in the CIS (construction industry scheme), and paid their tax that way. But I don't know if there's a minimum requirement for that sorry.

Don't ignore it, get it sorted. Speak to an accountant. You'll probably pay around £300 for an hour's meeting. Don't spend time on niceties, get straight to the point and get the most for your money. If you really can't afford that then get yourself an appointment with the CAB.

I hate to say it but the likelihood is you will end up paying the tax that the subbies should've paid. Do as gillybean2 says and contact someone who will know for sure, but just be prepared that you may get an answer you don't want.

Can you work out how much tax it will be if you have to pay it? It may not be as bad as you think.

HMRC will normally allow you to make a payment plan with them as long as you're upfront about not being able to afford the payment. You just need to make a sensible offer to them.

My advice is don't bury your head. Sort it ASAP. Be open and honest and you will be fine

I think that you will have to pay the tax on the cash that has been withdrawn to pay the casual labourers. We recently did our tax return and all the cash withdrawn for whatever reason we were taxed on.

If you really can not pay the tax bill it is worth calling them to try and fin a payment plan you can manage. Our tax bill was a lot bigger than I expected it to be but luckily we can just about manage it. Do you have an idea of how much you think it might be?

Hope it's not as bad as you think.

If you make a payment plan, do they hit you with tons of interest?

sb, that's not technically correct. You are taxed on the profit. If you cannot provide details of how the cash was spent it will be put as drawings(this is not what you are taxed on). If you provide details of what was paid with the cash(ie receipts) they will be put as business expenses, ie come off the profit that you will be taxed on.

I'm not sure EM, i'll see if I can find out, i'll be back.........

here's the HMRC page on payment it seems interest is charged but it would prevent bailiffs. I don't want to scare you by saying that but they send them out pretty quickly. One of my client's has a large bill due for payment in July, but it isn't actually due. But because the HMRC are so bloody slow at processing returns he's had bailiffs out for something he doesn't even need to pay. poor sod.

Sorry if that is scary, but if you make a plan with them it won't happen. So make sure you do!

Sorry Eddas, that's what I meant, not explaining myself very well today! Should have said, cash withdrawn for whatever reason...without a receipt to show where it was spent...

I'm no expert but having to learn quickly! We were used to 5k tax bills maximum and our bill this year was twice that- I should have expected it but hadn't been watching the accounts closely enough. I should go on a course or something really!

5k???? I'm emmigrating! They really send baillifs? Fucking hell!! Well they will have to get in the queue - grrr. I take it we have until jan to sort this, as our accountant does the tax returns online. All i have to do is put the books together.

Could i not just draw up some invoices to show where the money was going. Get the guy we paid to sign that he received the cash? I mean, he would have put the money in his bank or would he Fuck, we really don't need this - we can barely pay our mortgage as it is.

Have you got any idea how much profit you made? To give you an idea...I think our taxable profit was somewhere around the mid 40's and the tax bill was around 11 ish.

I doubt the guy would want to sign anything now but you could give it a try.

SB, hope i wasn't rude it's just that alot of people think they pay tax on the drawings figure in the accounts, which isn't true, it's the profit.

em, sorry to scare you but yes they do! Yes you have until 31st Jan to file your return(online) and to pay the tax. If you get it done asap you'll know your liability quicker. You won't have to pay it til 31st Jan, would that give you time to get some cash together? or at least get a payment plan sorted. Try not to worry. You will be able to sort this out. They cannot get money you don't have. Make sure you speak to your accountant asap, they will help you.

You need to write down all the info you have, collect together whatever paperwork you have, and see an accountant.

No Eddas not rude at all! I didn't explain myself very well. I started to type a long post about how my husbands wages are drawings so we don't pay tax monthly, it's all done at the end of the year lumped together with all cash withdrawn for casual labour blah blah but thought it was too boring so ended up saying completely the wrong thing!

Much better to get the tax return done and to know how much you owe asap. HMRC will come down on you much harder if you haven't done the return. There are ways of dealing with the debt once you know what it is and much better to negotiate with them before it is due on 31 Jan. Information on tax debt on www.taxaid.org.uk/index.cfm

It is likely that you should either have treated the guys who worked for you as either employees or sub-contractors and you need to come clean on this asap - separate form the tax return really. You can phone the Tax and Benefits Confidential Helpline for advice without giving your details - www.hmrc.gov.uk/taxbenconf/index.htm.

Don't wait until jan to see your accountant, they can do your SATR's much earlier than this if you give them the info.

Ask their advice on this and get it sorted asap. I don't think you can treat it as casual labour or pay on an invoice, but I might be wrong. Check and get it sorted and then get your books to the accountant asap.

Hi Exasperatedmummy

Hope you are sitting down when you read this

It's not my area of tax I'm afraid! However I have just picked the brains of someone here at my office who is in the know on these things.

It seems that if you employ someone to work in the building trade and their work is specifically related to building (brick layer, plumber, plaster etc) then they should be registered with the CIS (Construction Industry Scheme). They give you their reference and you deduct 20% of whatever you pay them as tax and give them the relevant paperwork for their tax return to show they have paid the tax.

If they do not have a CIS reference you should be deductiong 30% as tax! I'm afraid that in this situation it is you are responsible for ensuring the tax is paid.

However, if they are working as a book keeper, or just drive the van or similar and don't actually do any 'building' work as such then you are not liable and can pay on an invoice or as casual wages and they need to pay the tax themselves in that case. Or you should be paying on PAYE if relevant.

You haven't said what these guys were doing for you, but I am guessing it would be classed as CIS related..? You therefore are liable for the tax that they should have been paying sorry.

Please speak to your accountant as soon as possible. Get this sorted out and put a plan in place where you can pay the outstanding tax over a reasonable time frame. If you fail to correct this then you leave yourself open to charges of fraud, tax evasion and money laundering.

So sorry to be the bearer of bad news
Try not to stress about it, but phone your accountant now.

The info gilly gives about the CIS scheme is correct but does not apply to work that is domestic or servicing only.

So if you have only ever worked on peoples houses you are OK but you should have had the guys invoice you and paid off the invoice.

If it was commercial then you should have been registered and they should have too.

Most of the work was domestic. We have had casual labour as labourers, and another guy do some plastering but he is a brickie. It was always done as a mate helping out a mate really, DP was just in charge of getting the money.

Gilly, i was vaguely aware of this and knew what you were going to say. Will get the paperwork together and go from there.

I have been hiding from this from some time, i have suffered from crippling depression and anxiety for the past two years. Im on medication. I didn't sleep AT ALL last night . My DP reckons we will only have a couple of grand to pay, as we really didn't make much money.

We have had trades invoice us for jobs done, ie electricians and that was on a commercial job - we wasn't questioned on that.

I just wish he would get a job working for someone else so they can have the stress.

WHY on earth would we be prosecuted for money laundering? I don't get that - fraud, maybe, albeit through ignorance. I mean, if we can't get round this, we will have to pay the tax ourselves and suck it up - BIG lesson to learn.

DP and the guys were registered with CIS, but we just did it so they could pay their own tax. We can afford to suck up the labourers wages as that was minimal, but he paid his mate about 6k

This is going to finish us for sure.

Of course you won't be charged with money laundering or fraud.

I presume there weren't huge one-off cash payments if these guys were labourers.

Tax evasion and tax avoidance are two different things. Tax evasion is illegal. Tax avoidance is not.

Yes you are in the wrong as you should have registered on the CIS scheme - but you did not as you were not aware you should have.

HMRC will have a relatively sympathetic view and you will be able to arrange a time to pay plan. Offer as much up front as possible and the rest owed over the shortest time scale you can afford.

The key is to get communication started asap with the tax office, because if you seem reluctant to sort it out they will come after you. They are one of only a few organisations that will make you bankrupt rather than waiting for you to jump, so to speak, and I know of one firm who had a cheque due to come in the day after the BR hearing, which would have sorted things, who were still made BR by HMRC. IIRC if you approach them with an offer of payment, they are more lenient.

Thanks hf. That is more reassuring. I am just getting back on my feet and i just can't face anymore problems. I have a job interview next week, if i get the job we will be ok, if we don't then.....

Just a couple of things to clarify here:

You need to get CIS (the Construction Industry Scheme ) sorted straight away, you have a legal obligation to operate the CIS on every payment you make as a builder, and you didn't do that so any delay in putting that right will not be looked on favourably by HMRC. This is nothing to do with your Income Tax that you can get sorted later.

Have you ever spoken to your accountant about CIS? If not, you should ask him why he never told you about it and made sure that you were dealing with it. Is he a member of a professional body? Does he have experience of construction work, if not you need to get someone who has, and again ask him why he agreed to take you on as a client if he is not competent in the relevent areas of work. You might have a claim against him if he has been negligent.

islandofsodor says that the CIS does not apply to payments you make for domestic work. That is not true - I am afraid it does (perhaps there is confusion because the CIS does not apply to payments made to you by domestic employers, but it definitely does apply to payments made by you to subcontractors).

I don't want to alarm you, but I don't think hf's comments about tax evasion and tax avoidance are very helpful. What your DP has done is not legal tax avoidance, it is operating illegally, albeit in (presumed innocent) ignorance of the law. However if you sort it out voluntarily now you have found out about it, HMRC should look at the situation favourably.

Your DP should have operated CIS on all payments he made for construction work, including the electricians on the commercial job. But it may well be that the electricians were entitled to payment without deduction of tax so there is no loss to HMRC. That is why you need an accountant that knows what they are doing with CIS.

Finally, don't let the talk of bankruptcy and bailiffs scare you. HMRC will be reasonable in giving you time to pay what is due, providing they know you are trying as hard as you can to sort things out.

All domestic and servicing work is exempt from the CIS scheme regardless of whether you pay subcontracotrs or not. Some contractors who choose not to do commercial work don;t register with the scehem at all.

However as you do commercial work I reccomend you register ASAP and begin to verify all your subcontracors. It is a really simple process to do once you are registered with the scheme. You just need to get the company registration number (if limited) or NI number (if not) plus the UTR of every subcontractor and then either verify them online or by phning the Inland Revenue. Much simpler than the old CIS 4/5/6 cards scheme.

Each month you then have to fill in a monthly return confirming that you have checked the emplyment status of each subcontractor, how much you have paid them and whether you have deducted tax. You deduct tax on labour only, not materials.

For some strange reason many accountants don't seem very up on this. I have lost count of the number of our subbies who we have had to talk through the scheme who have never been aware of their obligation to register.

It really will be best not to contact the IR as soon as possible. If you are seen to be doing your best they will be reasonable.

I am sorry islandofsodor, your statement "All domestic and servicing work is exempt from the CIS scheme regardless of whether you pay subcontracotrs or not." is not correct.

Here is an extract from CIS340
-BEGIN-
Private householders are not contractors for the purposes of the Scheme but if you do any of the work listed below for a contractor who is doing the work for a private householder, the contractor will have to operate the Scheme on payments they make to you.
-END-

So in the context of the OP, the payments to the plasterer fall within the scheme.