Advice needed - How to declare tax after 10 years

[rightguard]

Hi all, I realise this is a contentious issue, and one that will undoubtedly provoke opinion and perhaps condemnation, but here goes.

Since leaving college 10 years ago, I haven't paid tax or NI. The short story is I got myself into a small whole, being a freelance designer, as jobs were sporadic, so i didn't declare what little earnings i made. This whole grew bigger as the years went on, and whilst I saved earnings with the hope of coming clean, one dry patch or another would leave me depending on the savings and starting all over again.

As the years have gone by, I know that debt has grown, and to save enough to one day come clean and have everything in order and ready to pay back just isn't realistic. I want and need to set things right.

I have kept my accounts, though they are not by any means complete. I turnover an average of 20-25 a year and after outgoings I would estimate my taxable earnings each year to be around 8-12k a year.

Can you please advise what is the best way approach HMRC, and what penalties I might face?

Am I likely to face criminal prosecution with a jail term?

Can they seize my property to reclaim the debt?

In similar situations what are the most likely terms of repayment?

Should I approach a bookkeeper or an accountant first? And are they obliged to inform HMRC straight away?

These are the fears and worries that have me trying to get all my ducks in a row before 'coming clean', but now I must admit that it is an unrealistic ideal, and I must just face the consequences before it gets worse.

Thanks in advance

[Kidderminster Tax Advice]

Hi Rightguard.

I was interested to read your posting on the website - you'd be amazed just how common it is for people to get themselves into a pickle like yours. I think you always feel that your problem must be unique, but take it from me, it isn't!

In terms of what HMRC can do, it has the power to go back up to 20 years to raise assessments and collect the tax on your earnings. If your behavious has been at the very least negligent, HMRC can also seek a penalty from you of up to the same amount again as the tax due from you each year. In reality, HMRC never seeks the full penalty allowed under the law. It always takes account of the circumstances that have led you not to declare your earnings, how open you are about coming forward, how serious the matters in question are and how well you cooperate in sorting them out. Interest is also charged automatically on tax paid late, from the date when it should have been paid up until when you finally pay it.

You ask if HMRC might prosecute you. Again, that is an approach that is open to them, but to judge by the level of income you describe they are unlikely to consider prosecution. Instead, they are more likely to seek a financial settlement with you to take in all tax, interest and penalties due from you. Generally, HMRC like such settlements to be paid ASAP, but you may be able to negotiate with them payment by instalments.

You ask what to do next. My advice would be to take find an adviser who is used to handling tax investigations and negotiations with HMRC. Your adviser will need to sort out your accounts and quantify what tax you owe, then present your case in the most advantageous way possible for you so as to ensure you obtain the best deal you can from HMRC. A general accountant will prepare for you a competent set of accounts but may perhaps not have the specialist experience of negotiating with HMRC.

Good luck with your tax problem.

[OneE TDI]

Hi Rightguard,

Rest assured, your situation is not uncommon and more importantly can be managed and resolved with HMRC.

Like many individuals in your position, criminal prosecution by HMRC is a major concern. However, criminal investigations are resource intensive, expensive and time consuming so HMRC's priority in recent years has been to tackle ‘tax fraud’ (or non-compliance (including the hidden economy)) via its Civil Investigation of Fraud (CIF) procedures and various disclosure facilities and campaigns that allow individuals to voluntarily approach HMRC and get their tax affairs in order.

Whilst there will be future targeted campaigns and disclosure opportunities, in my opinion you should not wait to disclose errors in your tax affairs to HMRC. There is no guarantee that HMRC will offer a disclosure facility that suits your profession or, moreover, that HMRC will not commence a formal investigation of your affairs before any such facility is offered.

Without doubt, a voluntary approach to HMRC is the best way to protect yourself from being either criminally investigated or, worse still, prosecuted. In addition, a full, voluntary disclosure will also prevent HMRC from publishing details about you on its 'Tax Defaulters' website. HMRC has assured those who voluntarily come forward to put their tax affairs in order that they can expect very similar terms to those offered via targeted campaigns and disclosure opportunities.

The management of the disclosure process and the way in which the relevant facts are presented to HMRC are key to achieving maximum penalty mitigation and protecting you from further lengthy enquiry by HMRC. Time-to-Pay (TTP) discussions/arrangements can also be agreed. The preparation and presentation of your TTP proposal is of paramount importance and specialist advice is invaluable.

If you would like to discuss your situation on a more confidential basis please visit www.oneEtdi.com for further contact details.