The text below I have lifted verbatim from an article in today's Taxation magazine.
It concerns the work of a charity called TaxAid who do some great work. (Personally I don't contribute to their work as my average client is not theirs but I'm seriously considering whether I should volunteer).
It's written by David Brodie who founded the charity.
For my part, I think this is an EXCELLENT piece and contains sound advice in readable form.
How TaxAid helped taxpayers facing bankruptcy
Related articles
Helping hand
Move the penalty spot
The charities, TaxAid and Tax Help for Older People, typically advise clients in financial difficulty.
Sometimes the charities have to advise on how to deal with tax debt, particularly if their circumstances are exacerbated by other traumatic events in their lives.
This may involve guiding them through a difficult process and finding the least worst option.
Costly business
Since 1993, Nick has worked as a self-employed subcontractor in the building trade and been taxed under the construction industry scheme.
Early on, he engaged an accountant to prepare his tax returns. These led to regular refunds and Nick assumed all was in order.
Five years ago HMRC opened an enquiry, challenging some of his expenses.
Nick asked the accountant to deal with this, but they soon fell out over the fees and HMRC’s letters went unanswered. Brown envelopes arrived and, after he realised that HMRC were asking for a sizeable payment, Nick left them unopened.
In early 2015, he was served with a statutory demand for £11,300 due to HMRC. His local citizens advice bureau explained that this would lead to a petition for his bankruptcy, and referred him to TaxAid.
We obtained details of the enquiry and found that, in the absence of any response from Nick or his accountant, HMRC had resorted to their powers of assessment.
Although a two-sided negotiation would have led to a lower settlement, the amounts assessed were not wholly unreasonable, and the time limits for appeal had long passed.
We advised Nick that the expenses could not be contested, and that HMRC were serious about proceeding to bankruptcy. We explained that this would lead to the sale of the family home by the trustee in bankruptcy to realise the funds to pay the debt.
There would also be thousands of pounds in costs and fees of bankruptcy, which would greatly erode any sales proceeds that were left.
To avoid those costs and fees, Nick and his wife decided to put the property on the market themselves, pay the tax debt, and use the balance towards purchasing a smaller home.
We obtained HMRC’s agreement to defer the bankruptcy petition for a few months to allow them to do so.
Debt relief order
Sam is a self-employed decorator. He had a serious illness in 2010 and was off work for several months. The family got into debt and he ended his relationship with his accountant.
Although his earnings were then low, and he would not have much tax to pay, he ignored HMRC’s requests for tax returns. These were followed by phone calls and visits and, last Christmas, his wife threatened to leave him if he did not sort things out.
We helped Sam to file his four outstanding tax returns, which showed tax liabilities of £750 which he was paying at £70 a month, but interest and late filing penalties of almost £5,000 remained outstanding.
We investigated whether he had a reasonable excuse to challenge the penalties but found that, unlike other clients who have suffered health and family problems that would attract HMRC’s sympathy,
Sam could show no mitigating circumstances. He had, in his own words, been “a bit of an ostrich”.
Analysing his situation, we explained that HMRC would not agree to write off the £5,000 penalty, which he felt was wholly disproportionate to the tax due.
He added that he doubted he would ever clear his debts because he also had a bank loan of £6,000 that he had taken out when he was ill. He was very disturbed by this prospect.
We explained all his options and he decided to apply for a debt relief order (DRO). This is available to people with debts below £15,000, “spare income” of less than £50 a month, and assets worth less than £300.
The debt limits for DROs will rise to £20,000 in October 2015. In the press release announcing this, business minister Jo Swinson acknowledged that “struggling with unresolvable debt can cause immense stress for families”.
The order will protect Sam from the demands of HMRC and the bank, and the debts will be written off after 12 months.
HMRC’s discussion document on tax penalties concedes the late filing penalties for self assessment can be a blunt instrument. It invites comments by 11 May
It concerns the work of a charity called TaxAid who do some great work. (Personally I don't contribute to their work as my average client is not theirs but I'm seriously considering whether I should volunteer).
It's written by David Brodie who founded the charity.
For my part, I think this is an EXCELLENT piece and contains sound advice in readable form.
How TaxAid helped taxpayers facing bankruptcy
Related articles
Helping hand
Move the penalty spot
The charities, TaxAid and Tax Help for Older People, typically advise clients in financial difficulty.
Sometimes the charities have to advise on how to deal with tax debt, particularly if their circumstances are exacerbated by other traumatic events in their lives.
This may involve guiding them through a difficult process and finding the least worst option.
Costly business
Since 1993, Nick has worked as a self-employed subcontractor in the building trade and been taxed under the construction industry scheme.
Early on, he engaged an accountant to prepare his tax returns. These led to regular refunds and Nick assumed all was in order.
Five years ago HMRC opened an enquiry, challenging some of his expenses.
Nick asked the accountant to deal with this, but they soon fell out over the fees and HMRC’s letters went unanswered. Brown envelopes arrived and, after he realised that HMRC were asking for a sizeable payment, Nick left them unopened.
In early 2015, he was served with a statutory demand for £11,300 due to HMRC. His local citizens advice bureau explained that this would lead to a petition for his bankruptcy, and referred him to TaxAid.
We obtained details of the enquiry and found that, in the absence of any response from Nick or his accountant, HMRC had resorted to their powers of assessment.
Although a two-sided negotiation would have led to a lower settlement, the amounts assessed were not wholly unreasonable, and the time limits for appeal had long passed.
We advised Nick that the expenses could not be contested, and that HMRC were serious about proceeding to bankruptcy. We explained that this would lead to the sale of the family home by the trustee in bankruptcy to realise the funds to pay the debt.
There would also be thousands of pounds in costs and fees of bankruptcy, which would greatly erode any sales proceeds that were left.
To avoid those costs and fees, Nick and his wife decided to put the property on the market themselves, pay the tax debt, and use the balance towards purchasing a smaller home.
We obtained HMRC’s agreement to defer the bankruptcy petition for a few months to allow them to do so.
Debt relief order
Sam is a self-employed decorator. He had a serious illness in 2010 and was off work for several months. The family got into debt and he ended his relationship with his accountant.
Although his earnings were then low, and he would not have much tax to pay, he ignored HMRC’s requests for tax returns. These were followed by phone calls and visits and, last Christmas, his wife threatened to leave him if he did not sort things out.
We helped Sam to file his four outstanding tax returns, which showed tax liabilities of £750 which he was paying at £70 a month, but interest and late filing penalties of almost £5,000 remained outstanding.
We investigated whether he had a reasonable excuse to challenge the penalties but found that, unlike other clients who have suffered health and family problems that would attract HMRC’s sympathy,
Sam could show no mitigating circumstances. He had, in his own words, been “a bit of an ostrich”.
Analysing his situation, we explained that HMRC would not agree to write off the £5,000 penalty, which he felt was wholly disproportionate to the tax due.
He added that he doubted he would ever clear his debts because he also had a bank loan of £6,000 that he had taken out when he was ill. He was very disturbed by this prospect.
We explained all his options and he decided to apply for a debt relief order (DRO). This is available to people with debts below £15,000, “spare income” of less than £50 a month, and assets worth less than £300.
The debt limits for DROs will rise to £20,000 in October 2015. In the press release announcing this, business minister Jo Swinson acknowledged that “struggling with unresolvable debt can cause immense stress for families”.
The order will protect Sam from the demands of HMRC and the bank, and the debts will be written off after 12 months.
HMRC’s discussion document on tax penalties concedes the late filing penalties for self assessment can be a blunt instrument. It invites comments by 11 May
