Hello j20x - you really are in a horrible position of trust here as it sounds like this individual does not want to do the only acceptable thing that needs to be done - my advise would be to either help guiding her to make a full and frank disclouse if she wants and needs your support, or if she refuses to see the light step back and remove yourself from the situation so that you don't feel guilty about the end position - some individuals when it comes things like this refuse to take the only sensible option unfortunately - there is no middle ground going forward from where she is.
I would guess hmrc are unlikely to throw the book at her.
Probably not if she immediatly changes her tune and makes full and frank disclosure.
She has no idea what to do and has decided to bury her head in the sand and has told HMRC that this is a mistake and denied any wrong doing
Sigh - this is a big issue if she cannot see the problem here that she has created and she needs to take responsibility for that she needs to declare her full and frank income sources to hmrc then she is probably beoyond help and deserves and book thrown at her. everything i will post below will be on the basis she takes the opportunity to turn her attitude on its head and decalre her income as fully and accurately as possible.
she is best to engage and accountant - but accountants aren't miracle workers if she continues to be evasive about what she has done and when - with hmrc its all about being as accurate as possible - being blunt some people actively try to avoid being pinned down on facts and she needs to make sure she takes tis opportunity to get a clean slate.
How would HMRC have found this out?
You won't know - highly likely via online trwal of facebook/paypal etc based on what you have said.
Will this just go away as surely HMRC have bigger fish to fry?
Errr no - hmrc aren't psychic - until she declares as accurately as possible her income and expenses hmrc don't know that she isn't a big fish. HMRC should treat all taxpayers equally whether big fish or not really if there is lost tax at stake - everyone else has to go to the trouble of calculating income - declaring and paying tax why should she be left alone for someone else to be fried?
How long can this drag on for?
Probably only as long as she drags it on for - if she provides sensible figures hmrc are likely to accept those figures at face value unless they have specific information otherwise - main thing though is not to compound the initial error and now state less than her true level of income
Can they force her to provide bank statements?
Absolutely- as she has atrade its up to her to have adequate information of ins and outs - if she doesnt she should expect hmrc to potentally request ALL her financial info including credit cards are the like.
She owns her own home outright (~£280K) along with a couple of cars - could they take this from her?
Errrr - she sounds like she is a very lucky individual who has the trappings or a good life (probably helped by not paying her fair share of tax.
Practicably speaking its up to her how she finds thje money she owes whether she takes loan / remortgage or sells one of her cars ? why would she think they "wouldnt" want to take the money she owes ?
How much would an accountant cost?
Very variable - it really depends on who you engage and the quality of information and dicolures she makes - it will cost more if she doesnt do the donkey work of trying her best to identify or estimate all income and expenses and listing them to the best of her ability and ensuring all relevant records are avaailble if they can be. eg bank statement payap statements etc.
Could she end up behind bars?
Providing she makes full and frank disclouse i would have thought its extremely unlikley - although the above comments suggest she has made the worst possible start trying to stay out of trouble by directly lying to hmrc so perhaps she is beyond help? - ideally she needs specific advise though in that regard and needs to be 100% honest and transaprent in her disclosure. On the face of it she is the perfect person unfortunately to make an example of - many people are in financial distress and forced down an unsavoury route as they can't pay the bills to keep a roof over their head - for someone who has a fully paid house and is driving around in multiple cars it sounds on face value to me that she really has made a conscious decision to feather her own nest at the expense of the less well off whatever excuses she makes.