Please help: Six years of undeclared tax

[iwanttopaytax]

Please help.

I have been suffering from severe depression for several years since 2003, originally I was sectioned under the mental health act, afterwards tried to commit suicide several times, and felt unable to handle paperwork (and would regularly fail to pay bills so would get debt collectors call). In 2004/5 I called the local tax office to ask if I should fill in a tax return as other people at work were talking about them and I was worried I would get in trouble for not doing so. They sent me one through the post but I felt unable to complete it so I ignored it. Then I moved address and didn't inform them of the move. So I will have some fines as a result of that.

In subsequent years I have earned some money outside of PAYE which was undeclared. A combination of being depressed, and fear over what would happen if I told them (having no money to pay) led me to just ignore the tax issue. Now, many years later, my mental health has improved significantly and I want to put things right and pay the tax and any fines that I will owe.

One serious problem I have though is that I did not keep proper records during that period. I have a P45 for one year, but no P60s for the other years. All I have now are the bank statements I received from an SAR request from my bank (a list of all transactions). This information does not clearly indicate what was an income, and what is just me moving money around my accounts / paying in cheques / paying in cash that I'd previously leant to work colleagues / borrowed from parents etc. I have no idea what is what. There are a lot of cases where it just states that money was paid in to my account via cash or cheque.

I have a recollection, and a 'paper trail' through my email that allows me to reconstruct what I believe to be almost all (if not all) of the occasions where I was paid money for freelance work I did outside of PAYE. However, I don't know whether that is good enough for HMRC. If I state that I was paid X outside of PAYE in some year but there are other credits on my bank statement that I can't account for, I am fearful of what they might say. It is my intention to pay any taxes I owe, but I don't know how to a) be 100% sure (although I can be 99% sure) I am including everything and b) Produce a history that HMRC will accept as a fair account of what happened (I don't want them to demand access to my bank account statements and then tell me as I can't explain every cheque paid in that I am hiding things from them).

To give you an idea of the sort of amount of money I think is involved, including everything I'm personally uncertain about (but not everything I can't absolutely explain) the undeclared amounts would be about:
2004/2005: £700
2005/2006: £2,000
2006/2007: £3,600
2007/2008: £7,800 (with no other income that year)
2008/2009: £2,300 (with no other income that year)
2009/2010: £5,449 (with no other income that year)

I would really appreciate some advice on what the best thing to do is from here. I have about £2,500 in my bank now that I can use to pay any taxes I owe. I assumed the best thing to do would be to contact a tax accountant immediately, but a website I read (Tax Aid) said that as soon as you contact them they have to contact HMRC to let them know you've been avoiding tax. I want to pay my taxes, but I want to make sure I have a better handle on what I need to declare before that happens.

Am I best off spending more time working on the data more (so far I've only spent tonight writing it all down and going through everything), writing HMRC a letter telling them that I am trying to work things out and am contacting a tax accountant, and then contacting one? Should I then ask the tax accountant to talk to HMRC on my behalf? I have no training in these things.

What will happen as I have no records other than my bank statements (and that one P45)?

Very very roughly how much am I likely to be fined / going to have to pay?

Approximately how much should it cost for a tax accountant to help me here?

What is the best thing for me to do next?

I really appreciate any help you can all give here. I'm in a real pickle.

Thank you very much.

[scottie2]

Hi There-appreciate this is very difficult for you and the most important thing is not to worry-now that you have made the decision to come forward and deal with your affairs, it is very much a case of putting forward to HMRC figures that are based on fact and those where, in the absence of available data/documents, you can put forward reasonable estimates of the position. The bank statements is the right place to start and you have done a good job of identifying the business and non-business receipts into the account. Can you explain what kind of activity you were involved in and are there any expenses that you would have incurred that we can include a reasonable estimate for? This can be done in the absence of receipts. This would help in reducing your tax liability. The other thing is that once you disclose the facts to HMRC, they will be able to help you with details of your earnings for the years you have not retained P45's etc. I note from the figures you have supplied for 2008/09 and 2009/10, that you had no other income. You are under the tax free allowance in both of these years and no tax would be payable, however HMRC would want to know how you were able to support yourself on these relatively low levels of income. The best thing to do is to approach an advisor who has a track record of making disclosures to HMRC,as they would certainly be able to add value to the situation in securing the lowest penalty and deal with HMRC on your behalf. Please feel free to get in touch if you need more help. manoj.anand@wlhtax.co.uk

[iwanttopaytax]

Thank you for your comments Scottie2.

I had no idea I could reduce tax against expenses without paperwork. I spent several thousand pounds on a credit card in 2005/2006 buying computer hardware which was used for these business purposes. I did not keep everything properly in separate accounts though (everything is mixed up in my personal accounts).

With respect to 2007/08, 2008/09, and 2009/10 - it is not actually true to say that I had no other income. I said that here for simplicity as I knew my post was already quite long. In fact I did have another income in those years but that income is from a special international treaty organisation (like the UN), and due to the diplomatic-like status of employees of these organisations this income is not taxable. We have a 'tax guide' written by PWC stating that we should not normally need to tell HMRC about this income (they give us some text to give them that refers to the appropriate treaty). PWC also state that as a result we will have our tax free allowance available should we have any other income.

Do you know the answers to the other questions I asked?

What will happen as I have no records other than my bank statements (and that one P45)?

Very very roughly how much am I likely to be fined / going to have to pay?

Approximately how much should it cost for a tax accountant to help me here?


A further problem I realised today is that I should also have been paying Student Loan payments from the point at which I left PAYE and joined the special international treaty organisation. So I probably owe around £2,000 to £2,500 in unpaid loan payments as well.

I am very worried about this situation - if I contact HMRC and they calculate that I owe for example four or five thousand pounds including fines (I have no idea whether that's the right sort of ballpark) plus the cost of the tax adviser and the student loan payments, that this will be many times the amount I have (about £2,500). I do not have any significant assets (no house, etc), I have about £13,000 of other debts, and then just an old car / sofa / TV / etc.

[scottie2]

hello again-it is quite difficult at this stage to estimate your liabilities as i am sure the income figures can be reduced markedly by claiming legitimate expenses. However on the basis of the figures you have given and if we take the view that you will have no liabilities for years 2007 et seq, your liabilities for the three earlier years will be at the basic rate of 20%-so worst case scenario would be £6300 omitted income at 20%=£1260-no Class 4 NIC would be payable as you are under the threshold. Interest would be added which would add a few hundred pounds to the total. The penalty would start at 100% of the tax lost, and would be reduced by HMRC according to three factors-disclosure, co-operation and seriousness-in a case like this, and similar cases i have dealt with, I would be arguing for a very low, if not nil penalty-the key issue in keeping the penalty to a minimum is to get in touch with HMRC before they find you, and making sure you co-operate fully with their enquiries. HMRC will normally accept reasonable estimates in the absence of paperwork-if i had an idea of what business you were in, I could put forward some ideas on some obvious areas. A good advisor will work with you to keep the professional costs to the minimum-you can actively contribute by doing the analysis work, however you would need to be realistic as sorting this situation will necessitate you spending some monies on professional costs.On the basis of what you have said, this would not be a huge job for HMRC and they would have no interest in prolonging this matter and subjecting the disclosure to very detailed scrutiny. Have you a job lined up? If so, HMRC would be willing to consider an instalment arrangement for repaying your eventual liability. Not sure about the student debt and perhaps this is another area to discuss in due course. If you need more advice, contact me at manoj.anand@wlhtax.co.uk