Huge tax bill - where do I go now?

[ImMissWorld]

I run my own small business (literally me although my husband has been a partner in it, but doesn't actually work with me)and I don't have a great relationship with my accountant. his bills are huge and I was going to stop using him after this last tax return.

Today I received the figures from him for our tax return and it totals £35,000. I don't know what to do. I've emailed him to say surely there is some mistake but heard nothing back yet. The thing is I don't even know whether to trust him or not - if he starts going back and forth he'll send me a huge bill of his own. I don't want to alert HMRC straight away because if it is wrong maybe it can be sorted out straight away.

Would CAB be the best place for some impartial advice? Or is there an accountant ombudsman or something.

And if for some reason I can't fathom this bill is correct (it can't be - I don't even earn that much generally, I just sold one small bit of my business last year which brought in a bit of extra cash) then how the hell do I pay it? Can I owe the money to HMRC.

What on earth am I going to do?

Well if you ascertain the correct figures you will be able to arrange Time to Pay with HMRC.

Get a new accountant - there are always nice mums around with their own small accountancy businesses. Set aside 2k or so for an accountant to look over it all for you.

You can arrang a payment scheme with HMRC, don't know how to check if your bill is right though, I thought ours was huge until I read that

I don't even have £2k in my business account to set aside. That's why I need to know if there is somewhere I can get free advice - I guess CAB is the best place?

What makes me suspicious is that this accountant has been banging on at me to take out insurance against a tax investigation and I've always ignored him. He couldn't possibly be doing this so I do get investigated and have to stay with him could he?

Will these people be able to help?
www.taxaid.org.uk/

Look at HMRC site as there is lots of helpful information there as well. If that is the actual bill then contact HMRC straight away to work out how you are going to pay it, as they will charge interest on late payments so ignoring it will just make it worse. (Not saying you will ignore it).

Are you positive he is saying you owe that much and not that the 35k is your taxable income?

Our accountant sends us one of those letters once a year about the insurance

I mean £35k!! It's an absolute joke as far as I can see.

For the 4 years I've been running the business I have made about £25k per year. Last year I sold the main part of it for a sum of £45k plus I could bank some of the other money which I'd had to keep as deferred income. So last year I made about £80k and then I had one last bit of income from the sale this year of £18k.

I expected to be paying a bit more tax this year but I thought there was some exemption from the sale of a business as opposed to actual profits?

Thank you for the tax aid link - that looks like a good starting place. And for the other advice, thank you. I feel sick.

Oh God I hope this is wrong - I have no idea what I'll do if I have to pay this back.

Have you had any PAYE work in the past two years?

My DH got a whopping tax bill a couple of years ago when he stopped working PAYE and started working self employed. For reasons that we were never able to fathom, hmrc took his entire 12 months PAYE salary (on which he obviously already paid higher rate tax) to his self employed earnings and then added them together to come up with his taxable earnings. It was like paying 2 years income tax at once.

We had it checked, double checked and triple checked and unfortunately there was nothing we could do about it and had to pay the money.

We are still paying off the bank loan now .

I'm sorry to hear that bibbity, very sorry indeed - not least because it does not bode well for me.

I don't even really know what PAYE work is? I do my work, keep my managment accounts, and give them to the accountant once a year to come back and tell me what I have to pay to HMRC. I thought it was his job to know all the ins and outs and find ways to save me money if necessary.

Didn't the accountant go through the tax you should expect to pay on the proceeds from the sale? You should have asked him to do this. On the face of it it seems a bit high - it is likely you would pay tax in the year of sale on all the proceeds even if some were deferred - so capital gain of (say) (45k + 18k) at 18% (by last year you mean 08/09?) is less than 12k plus income tax and national insurance on 25k should be less than 8k. Assuming everything is held personally - will be completely different if it is in a company.

However it is possible that (some of) the receipt from the sale should be taxed as income in which case the figure could be higher.

The tax return or accompanying documentation should show the figures and the rates?

A decent accountant should produce a document you should understand, but I would not automatically assume they are wrong. You should also make an effort to understand this yourself and I am staggered that you have sold a business without checking out beforehand what the tax bill would be?

When/if you look for a new accountant, ask yourself (and them) what you are paying them for. If you do not involve them at any time until giving them figures after the end of the tax year, then you are paying them to do a (difficult) calculation but no more, and it is not their fault what the answer is. If you want them to be able to advise, help, structure and mitigate then you will need to involve them more and pay them more, but it might be worth it.

Sorry, I meant a job where you are employed by someone else. But I crossed posts with you where you explained that you have had your own business for several years now so am sure my dh's experience is not relevant in your case.

So are you saying you made about £100k last year and that he has calculated your tax bill at £35k?

Last year made:

£45k from sale of business
£25k normal profits from business
£20k released income

(those are estimated figures - can't remember exactly but they are the ballpark)

It was much more income than normal but from exceptional circumstances (eg the sale of the main part).

This year I will make

£12k profit from business
£18k 2nd and last part of income from sale

I know I should have worked more closely with him but I never understood what he was saying, always seemed to be designed to confuse rather than enlighten - and then he would send through huge bills without any explanation of what they were for. When I queried them he again didn't reply clearly, so I made the decision that I wouldn't stay with him any longer. Then this bill comes through and I am now stuck with him until all this is sorted out.

The thing is I'm a tax puritan. I believe in paying tax to make society work for everyone. If I do have to pay this then I will, but I don't know how and I really though there was some exemption for if you sold a business.

Also, the sale basically equalled the original amount we invested to set the business up 4 years ago.

What you really want to find out is

Which amounts are treated as income for the 2008/09 tax year. You will pay income tax and national insurance on these.

What is the amount of the capital gain from the sale of the business and how is this calculated. You will pay capital gains tax on this.

Then you can see if this makes sense and ask more questions if necessary.

I assume the tax is the amount due for 31 January 2010?

Then you need to find out if the £35k includes a 'payment on account' for the tax year 2009/2010. This will be based on estimated profits for that tax year. If you do run into trouble paying it is much more important to be able to pay the tax due for the past year than to pay the payments on account, although you will probably pay interest on these if they are late.

Yes - that is it entirely. I must just copy and paste that to email the bastard accountant. Thank you.

I still think there is a question to be asked about whether CGT is payable though on the sale of a business?

Surely at this point you can ask to see a copy of the draft PL & balance sheet for the business

If this is tax and Class 4 NI on £98k (including the £18k you say is this year) then £35k sounds about right. It is possible to reduce the tax bill on the sale of a business by careful planning before the event, but there is no blanket exemption.

This is what you have to do:

Get full details of the calculation from your accountant. You can't do anything without this as only he has all the necessary information.

If you don't understand this calculation and you don't trust your accountant (how on earth have you got yourself into this situation?), get someone else to explain it to you - if you don't have a friend or business contact you can call on you can probably find someone here to help.

If the calculations are right but you still don't trust your accountant, once the return has been submitted you need to find a new one.

If you think the calculations are wrong, you need to tell your accountant why. It may be that there is some information that you have not given him which will reduce the tax bill.

Once this is all over, if you are still unhappy with the service you got, your accountant should have given you a contract (usually called an Engagement Letter) which should have included details of his complaints procedure. If you do not get satisfaction, find out which professional body he is a member of and use their complaints procedure. Accountants are self-regulating (this actually works quite well IMHO) so there is no Ombudsman.

TaxAid is a charity for 'Anyone on a low income - whether employed, self-employed, retired or on benefits - who cannot afford to pay for professional advice'. In all fairness, £80k is not a low income.

Your idea about the tax investigation insurance is irrational: an investigation would only benefit him if you had taken out insurance.

Oooo lots of other posts while I took my time writing that one - we all seem to be saying pretty much the same thing though.

bibbitybobbityCAT the way the calculation normally works is that your husbands earnings from employment (his PAYE earnings) are added to his self employed earnings (and any other income) and tax calculated on the lot just like you said. But then the tax he has paid through PAYE (you can see this on his P60 for the year) is taken off so he doesn't pay it twice.

If this is not what happened it is not to late to get it sorted out now.

Oh God it's all sounding bad again. The thing is MrAnchovy I didn't exactly get myself into the situation. I do my job and employed my accountant to do his. He took over from someone I did like and trust and what with being pregnant/moving/selling the business changing accountants was quite low on my priority list.

I don't know, I guess I am to blame but it seems a bit damn pointless to have to understand complicated tax law myself just so I can question my accountant properly.

I don't get the selling the business planning beforehand though - I needed to sell it, someone offered to buy it, job done. What other planning could have been involved?

I do agree that £80k is a hell of a lot of money. I promise you I don't have that running through my hands regularly!!

How much tax have you paid for that year already? Does this current bill include a forward-payment for the current tax year?

Yes 35k sounds about right from the figures you have given, if you haven't paid anything yet. Perhaps put 30% of all income into a separate account from now on, so that you have a pot for paying tax?

Christ that's sickening to think of that amount. The figures show £15 for this year and then 2 lots of £7k for next year paid in to stages. Basically I have to choke up over £20k by end of Jan.

I could understand it if I made this type of money regularly but like I say this was a one-off from the sale of a business.

Oh well, thank you all anyway. MrAnchovy if I sound a bit snippy in the one above it's not meant at you - just at the situation and annoyance that my accountant didn't give me any warning that this was coming my way.

Ahh. That makes much more sense. OK the £15k is probably right, but the 2 times £7ks are just £15k divided by two (ie estimating next year assuming it is the same as this year). You should talk to him, give him estimates of the 09/10 income and those should reduce depending on your expected level of income this year.

As for selling the business needing no planning beforehand - to be honest, words fail me about how important that is. At the very least you should have found out how much tax was going to be due so you could budget. There are lots of different ways to sell (and to buy) and tax is an important bargaining point. Even if nothing would have altered what you did you might have bargained harder if you realised what felt like receiving £45k (say) was actually receiving less than £35k?

Ah in THAT case you only owe £15k - the rest is a guess from the tax office for what you will earn this year - which as you have said, is much less.

If you ring your tax office, they should let you defer the second two installments of 7k if you explain that you won't be earning the same amount of money as last year - then they can work out the actual amount you earn until you've done your tax return for the next year.

You really need to spend some money on a good accountant if you don't understand the basics I'm afraid.