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Where Taxpayers and Advisers Meet

Help! Sole trader HMRC investigation

classicmechanic
Posts: 15
Joined: Sun Dec 03, 2017 5:51 pm

Help! Sole trader HMRC investigation

Postby classicmechanic » Sun Dec 03, 2017 7:51 pm

Hi folks, new here, I don't know what else to do other than ask for help, as things really are getting on top of me and I'm getting very down about it, I shall try to summarise.
I am a single self employed (sole trader) , no kids etc , in rural England in my late 40s I am a car enthusiast (old cars mainly) I do mechanical stuff and also buy and sell cars and parts. This came out of a hobby / car club and became a source of income hence registering as self employed.

I am not VAT registered. I have a turnover of roughly 20K a year, the actual profit of which tends to be under the personal allowance so I have been paying little or no income tax most years. I of course pay VAT on anything I buy of course, and fuel etc. I have been keeping detailed business records, all my receipts etc, and enter these into a spreadsheet and submit the figures to a local accountant who files my tax return for me, as frankly that melts my brain and I don't want to make a mistake.

I often have health issues affecting my mobility and ability to work. A few years ago I moved back to my parents' house and rented my house out which belongs to my sister and me. Rent split between me and my sister. So now most of my income comes from the house rental, and I have been saving money in an ISA account for a rainy day / if my health gets worse / help build/diversify my business. I have been living a rather low-outgoings existence, I am not paying rent, I don't drink, smoke and have not been on a holiday for 10 years. I don't travel often (I get anxious easily) and I don't have TV subscriptions, computer games anything like that or even broadband, so I don't need a huge amount to live on. In fact I felt like I was doing alright and managing to save up some money, and had no debt.

In February HMRC decided to do an investigation on me. Not sure why the picked me other than they probably the lack of income tax payment and couldn't understand how anyone could survive on an income below the personal allowance.

I complied with everything they asked, responded to their communications, sent them my spreadsheets, and all my receipts, card machine slips, etc. They then asked for my personal bank statements, as I did sometimes get business payments paid into that account as the fees are less, and the online banking is much better apart from anything (so i sent them those and the ISA one as well just in case) They also asked for a list of anything paid into my Paypal account. I gave them everything. As far as I knew everything was in order and they would have little or nothing to say about things or maybe offer me some suggestions/ help.

The first thing that became apparent was that the part of the rent that was going to my Sister.. I was supposed to be counting this towards my income. I had no idea, since I never thought of this as my money, I was collecting it on behalf of my Sister. (Imagine asking a tenant to pay their rent into two separate bank accounts!) So this was annoying and I figured this would mostly be into income tax zone, the I'd have to pay 20% on it , going back several years. About 5 grand I figured.

I decided to meet with HMRC and went to their stuffy claustrophobic office block 30 miles away. There were two HMRC officers, the guy I had been corresponding with, and another guy. Both were pleasant in manner. I apologised for misunderstanding the way the tax worked and offered to pay any back taxes due. They asked some questions about payments into my personal bank account in 2013-2014, and also into Paypal, where they were unable to see a corresponding sales entry in my business accounts. I explained that not only to I have only one Paypal account but my parents and I share it, and in fact the computer, and even the Ebay account and other things. I didn't think this would be the cause of any problems as long as I had put anything relating to my business into my business accounts. I explained that if it wasn't in the business accounts, it must have been some personal payment from either people I know, selling an item for my Mum or Dad, or perhaps a household item for myself or a friend or whatever. They asked me to prove what the payments were, they didn't seem to accept that it was unreasonable for me to either remember what these payments were, or have kept records.

To my astonishment they said that they would have to count all the unknown transactions towards my income, a kind of presumption of guilt, I had no idea they were allowed to do that.

It gets worse.. Some stuff subsequently arrived in the post. The period that they looked at .. they figured if I had made an error or omitted things there, I must surely have made the same mistake on every other year (going back 7 years) therefore they made up fantasy figures for the other 6 years. I'm talking 3 or 4 grand each year extra in TAX.

This seems utterly insane to me, for me to owe 3 grand extra tax each year, they must be imagining I am receiving 15 grand extra income each year, or about 90 grand. Well I don't see it !

I think they are charging me interest on the fantasy amounts too.

Oh and the cherry on the cake... a penalty for every year for 'presumably getting it wrong'.

The bottom line is, they want about 25 grand out of me. This would basically wipe out everything I have been working for for the last few years, saving up, putting money in my ISA. It would basically.... empty it and it makes me feel like the last few years of working have all been totally pointless.

I have been very depressed over the last few weeks as the deadline to do anything about it looms. I have not even done any work, some days I find it hard to actually get out of bed, and I just can't see the point of working, if someone is going to steal everything I earn.

Has anyone else had anything similar to this? Are there any recommended experts out there that can stand up to HMRC? I was given the details of a place but they want money up front, so I have not done anything about it, as I wasn't sure if that was normal and it feels like a lack of trust.

Ideally I'd like to find someone who would take a percentage of the money slashed off the HMRC figure as their payment. I am crazy for thinking that the right person could negotiate a figure much more inline with tax that is actually due, and remove the penalties?

Thankyou for reading.

wamstax
Posts: 1869
Joined: Wed Aug 06, 2008 3:39 pm
Location: Operate Nationally but based in Aberdeen
Contact:

Re: Help! Sole trader HMRC investigation

Postby wamstax » Mon Dec 04, 2017 12:05 am

Unfortunately if there is tax unpaid you will likely have a penalty -although in some circumstances this can be suspended (if it is a careless penalty) for what you might call good behaviour going forward if HMRC set conditions and you meet them.

What you are experiencing is usual HMRC practice if they uncover “unidentified” receipts that you cannot evidence as not yours or non taxable.

I am afraid that tax investigationexperts do ask for money up front (usually £5k or more) but I am one of the exceptions as I don’t like money in my bank account that I have not earned and can spend. However you’re unlikely to get an expert to work for a slice of the reduction or a capped fee as usually the basis would be an hourly fee (as how long is a piece of string and who knows what is going to be involved in getting it sorted.

I also have to say that going into an investigation without being represented was not a good move and here HMRC might have inappropriately tried to shortcut matters by making bullying assessments to take advantage of somebody that does not realise the dangers or makes incorrect assumptions. I am afraid that there can be rogue officers that seek to exploit unrepresented taxpayers and you might have one or two on your case ( or they have just got themselves carried away with having found Al Capone of the Classic cars

You really need to get somebody professional that you can sit down and go through all your accounts and come up with the evidence to show HMRC that their assumptions and conclusions are incorrect.

As far as your sisters rents are concerned if you are collecting them on behalf of you both and accounting to her for her share then whatever HMRC think her income is not taxable on you

Unfortunately you are going to have to address the enquiry year in detail as getting this down or cleared will affect earlier years
regards and hope this helps
http://www.wamstaxltd.com
Operates Nationally with competitive costs
and email and phone contact can be obtained from website

classicmechanic
Posts: 15
Joined: Sun Dec 03, 2017 5:51 pm

Re: Help! Sole trader HMRC investigation

Postby classicmechanic » Mon Dec 04, 2017 1:21 am

Thankyou yes I do need someone to go through it with me, HMRC have all my physical receipts etc, can I request them sent back, or that they at least photocopy everything ?!) maybe I can just do it from the spreadsheet as they should match. THey do have all my bank statements though, maybe I should order another set?

Shame you are so far away , I have read lots of other topics on this forum and your input to them. You seem to be able to offer a lot of help.

wamstax
Posts: 1869
Joined: Wed Aug 06, 2008 3:39 pm
Location: Operate Nationally but based in Aberdeen
Contact:

Re: Help! Sole trader HMRC investigation

Postby wamstax » Mon Dec 04, 2017 4:20 am

JUst tell them that you want ALL your papers returned along with a copy of the notes of the meeting you had with them as clearly their views are inappropriate and you will require to take professional advice if they are continuing to maintain their position. You also do not agree with any of their views which are not based on evidence but their unevidenced assertions without any evidential basis.
regards and hope this helps
http://www.wamstaxltd.com
Operates Nationally with competitive costs
and email and phone contact can be obtained from website

robbob
Posts: 2807
Joined: Wed Aug 06, 2008 4:01 pm

Re: Help! Sole trader HMRC investigation

Postby robbob » Mon Dec 04, 2017 10:39 am

classicmechanic

This all boils down to technical details of the nitty gritty of the unknown transactions the more you can trawl back through the past and evidence that it is reasonably clear these are not trade related items then the more likely it will be that hmrc should back down. However if these are clearly not trade related spell this out clearly to hmrc in writing now with as much backup information as possible.
The first thing that became apparent was that the part of the rent that was going to my Sister.. I was supposed to be counting this towards my income. I had no idea, since I never thought of this as my money, I was collecting it on behalf of my Sister. (Imagine asking a tenant to pay their rent into two separate bank accounts!) So this was annoying and I figured this would mostly be into income tax zone, the I'd have to pay 20% on it , going back several years. About 5 grand I figured.
Ref rent Can you clarify - is this just rent received by you and your sister in joint names split 50/50 legally? - full rent is paid into your account and you forwarded her 50% into her bank account at a later date. If this is the case then you should only be paying tax on your half share. Presumably you ticked the relevant box on the tax return indicating that income is split jointly. HMRC officers are bang out of order if they are trying to tax you on your sisters income - this should be put straight fairly simply if this is the case. There may be an issue if your sister has not declared her income but that's not your problem.

You have the option to ask for another officer to look at the case and you should take that option if you can't get the current inspectors to see the light - however hopefully if you can provide some more evidence this issue may be able to be resolved with current officers.

Note all disclosures should be full and frank so if there is an element of undeclared trade income via paypal don't try and gloss over this fact.

Hopefully if needs be suitable experts here would be on hand to help if hmrc are acting unreasonably going forward.

wamstax
Posts: 1869
Joined: Wed Aug 06, 2008 3:39 pm
Location: Operate Nationally but based in Aberdeen
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Re: Help! Sole trader HMRC investigation

Postby wamstax » Mon Dec 04, 2017 1:21 pm

I think that getting back to basics - HMRC should have been restricted to examining the year of enquiry and ONLY AFTER THEY PROVE THEY HAVE A CASE FOR IRREGULARITIES IN THAT YEAR could they legitimately go into earlier years. This is the problem with just giving them anything they want as some officers will chance their arm with someone they think they can hoodwink or bully into submission
regards and hope this helps
http://www.wamstaxltd.com
Operates Nationally with competitive costs
and email and phone contact can be obtained from website

classicmechanic
Posts: 15
Joined: Sun Dec 03, 2017 5:51 pm

Re: Help! Sole trader HMRC investigation

Postby classicmechanic » Mon Dec 04, 2017 2:42 pm

Thanks chaps, the agreement with my sister was that she receives £400 a month and I had a direct debit set up to send this to her bank account. I Therefore did not count this on my tax return, I only put the remainder (net rental after 400 taken off) . Having to pay the tax due on that is not the end of the world, but a penalty would feel very heavy handed as it was not intentional or concealed in any way.

By the way they have listed several discounts they have applied to the penalties, bringing the penalties down to 18%. (hmmph)

https://drive.google.com/open?id=1EfqJF ... 9Eb0Z_njXm
https://drive.google.com/open?id=1xb4a8 ... zrOr4TEas6

wamstax
Posts: 1869
Joined: Wed Aug 06, 2008 3:39 pm
Location: Operate Nationally but based in Aberdeen
Contact:

Re: Help! Sole trader HMRC investigation

Postby wamstax » Mon Dec 04, 2017 2:52 pm

In my view you were quite entitled to only record the net amount after deducting the 400 if that was your agreement with your co-owner.
regards and hope this helps
http://www.wamstaxltd.com
Operates Nationally with competitive costs
and email and phone contact can be obtained from website

wamstax
Posts: 1869
Joined: Wed Aug 06, 2008 3:39 pm
Location: Operate Nationally but based in Aberdeen
Contact:

Re: Help! Sole trader HMRC investigation

Postby wamstax » Mon Dec 04, 2017 2:58 pm

From the seeming position you are in you need to get early action as there are time limits for objecting to erroneous figures (or actions) of the officer.
You need to get all your papers back and get them and the HMRC work reviewed urgently

I cannot stress that enough
regards and hope this helps
http://www.wamstaxltd.com
Operates Nationally with competitive costs
and email and phone contact can be obtained from website

wamstax
Posts: 1869
Joined: Wed Aug 06, 2008 3:39 pm
Location: Operate Nationally but based in Aberdeen
Contact:

Re: Help! Sole trader HMRC investigation

Postby wamstax » Mon Dec 04, 2017 5:53 pm

A penalty for the tax on the alleged unpaid tax on rentals? Based on what you have said I wouldn’t even contemplate the tax let alone the interest and any penalty.
regards and hope this helps
http://www.wamstaxltd.com
Operates Nationally with competitive costs
and email and phone contact can be obtained from website


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