Reply to: She's in a mess - dissolved company NHS contractor

[Glencky]

Some great advice already given, and I'd also like to say I admire what you're doing for your friend.

To put this in perspective, if we're talking about £24k in total, the actual (potential) unpaid tax and NICs bill, even worst case scenario, is considerably smaller than her personal debt. I'm not saying it's an insignificant sum because to people outside of the general contracting world (!) it most certainly isn't - I'm just saying that whilst it's the complex and slightly scary problem, it isn't actually the biggest one. So whilst all of this is very important, getting on top of the personal debt is probably the main priority (that I imagine you're helping with anyway, just not talking about it as much on here because it's not as relevant - the principles of debt management are a lot simpler to implement than IR35/ LimitedCo stuff!)

The only thing I wanted to add was to emphasise that to me, the most important thing is for you to help her do is to 'ringfence' the problem by ASAP getting her to a position where she is operating properly and being paid net. You've mentioned an umbrella company so I assume that is what you're helping her towards. Either way, I'd focus more effort on this in the short term and less on unwinding the historic position.

Has she been diagnosed formally with depression e.g. given anti-depressants by GP even? The reason I ask is because in the event of any HMRC proceedings commencing, that kind of thing can help significantly, not necessarily in outcome, but in slowing down the process/ allowing reasonable time/ calling off the dogs a bit. And that is going to be important. So if the depression isn't something that is logged properly with her GP and formally on record, I think it's important to encourage her to see her GP to discuss. Obviously this is true for her own mental health anyway as this will be the way to get help and support, but also because having it on record is going to be important. I would encourage her to divulge to her GP at a high level the financial problems she is in and the spending she has done, as that feels like an important symptom to me.

It's a shame that like-for-like, if she carried on doing the same/ similar work for the same/ similar rates she's going to end up with a drop in income just at the point where she needs every penny she can get for getting back on track...

Good luck with it, for your sake and hers.

[poorautojobber]

These maybe able to help if HMRC are sniffing about and doing the usual piss poor job.

TaxAid - help with a tax problem if HMRC can't sort it out

[Loan Ranger]

Found her contract for services

During an Assignment the Agency Worker will be engaged on a Contract for Services by the Employment Business on these Terms. For the avoidance of doubt, the Agency Worker is not an employee of the Employment Business although the Employment Business is required to make the Deductions from the Agency Worker’s pay. These Terms shall not give rise to a contract of employment between the Employment Business and the Agency Worker, or the Agency Worker and the Hirer. The Agency Worker is supplied as a worker, and is entitled to certain statutory rights as such, but nothing in these Terms shall be construed as giving the Agency Worker rights in addition to those provided by statute except where expressly stated.

As an agency worker, s44 ITEPA 2003 requires the agency to tax her as an employee under PAYE.

Income Tax (Earnings and Pensions) Act 2003

[sal]

If it was a self-bill invoice, I believe she should have signed an agreement for the self-billing, if she hasn't, there is a chance that the self-bill invoices to the ltd. were invalid and since she was paid to a personal account, it might be the agency who is liable for outstanding tax.

[mudskipper]

Thank you, I've put my replies in red above

Found her contract for services

During an Assignment the Agency Worker will be engaged on a Contract for Services by the Employment Business on these Terms. For the avoidance of doubt, the Agency Worker is not an employee of the Employment Business although the Employment Business is required to make the Deductions from the Agency Worker’s pay. These Terms shall not give rise to a contract of employment between the Employment Business and the Agency Worker, or the Agency Worker and the Hirer. The Agency Worker is supplied as a worker, and is entitled to certain statutory rights as such, but nothing in these Terms shall be construed as giving the Agency Worker rights in addition to those provided by statute except where expressly stated.

So that sounds like the deductions were made - it is possible this changed in April '17 when the new PS rules were introduced.

[Hobosapien]

Do the self billing invoices name the Ltd or her as to the direct recipient of the invoice payment?

If her rather than the Ltd then the agency may be liable for the tax, hence why they don't usually allow contractors to operate direct with them (as self employed if not employed by the agency) but require a Ltd so they can offload liability.

If paid to Ltd then agency should have asked for Ltd bank account and queried why her personal account details were provided.

So sounds as much like the agency is to blame as your friend, and where there's blame there's potential for them to be holding liability for any outstanding monies.

Then the Ltd is liable (directors have limited liability as per the Ltd name) so if your friend was never made director of what sounds like an off the shelf company, she's just the victim. If she was a director then the limited liability may mean the tax bill died with the company being dissolved.

[villamaria]

Another thing that just occurred to me: if she's getting paid company invoices into her personal bank account, her account and all her spending will be fair game for HMRC's rubber glove investigation as she's chosen to voluntarily mix the two. It makes it both easier and harder to explain away the ignorance around corporate and personal taxation law, "look how little I knew!" and HMRC's response "the law is clear, as is the huge case precedent where we've recovered lots of money from people just like you".

For me, this makes it even more important that you find the money for a proper accountant to do a disclosure to HMRC in the most sympathetic light possible.

Do you have any idea on the typical fees for this? I'm going to have to lend her the money to do so, unfortunately I don't have a bottomless account...

[villamaria]

First up, did the company submit annual accounts? Have a look on Companies House for them. That's always a useful baseline. No

Second, has she been "paid" since the company was dissolved using a Ltd company invoice? If so, there's a problem. If it has been dissolved, especially in a mandatory dissolution, then the money was never hers. Yes for circa 6 months

Third, find the agency contract. You never know, there may actually be a point in there about tax and NI being deducted. At least you'll know for sure... She can get this from the agency without bothering with the accountant.Just found her contract copy and paste relevant parts down below

Fourth, look at Companies House again, was she actually a director or shareholder? If so, sole on either? director and secretary - sole

Fifth, did she do a tax return or did her accountant do one for her? Get copies of them, she can get them from the HMRC self assessment website, if registered and she has the details. Even if she has forgotten then the Gov.uk Verify thing should get her online and access the same day.It wasn't done

Sixth, log on to her HMRC Personal Tax Account and see what they say about this year's tax status and estimated tax. Just to see if there's any record of any agency work on there. I'll look at this tomorrow with her

Seventh, reconcile invoices against payments. Do they match up £ for £? If they do, how was the accountant getting paid? If not, where was the extra money going? Investigate until you're fairly sure you can match £ for £ somewhere. £ for £ I've matched it all up

Finally, take all of the above and seek professional advice, regardless of cost, from a proper accountant (some hang around here) on what to do, especially with regards to HMRC and reporting underpaid tax. Put it specifically in writing to the accountant, or Citizens Advice if she really can't find the few hundred pounds this would take, that she wants to get an accurate figure for HMRC before doing a disclosure to them. That way if they come sniffing before she actually does disclose then she can point to an independent organisation for proof she had the right intentions to fix it. It'll cost far less doing this than bodging it and getting a wilful evasion penalty from HMRC.Honestly it is not an exaggeration, she hasn't got a single penny. We'll write to citizens advice and speak to national debtline

p.s. speak to National Debtline or even PayPlan as they won't charge you for debt advice and can usually find a way out of any problem if there's will and clear honesty involved.

Thank you, I've put my replies in red above

Found her contract for services

During an Assignment the Agency Worker will be engaged on a Contract for Services by the Employment Business on these Terms. For the avoidance of doubt, the Agency Worker is not an employee of the Employment Business although the Employment Business is required to make the Deductions from the Agency Worker’s pay. These Terms shall not give rise to a contract of employment between the Employment Business and the Agency Worker, or the Agency Worker and the Hirer. The Agency Worker is supplied as a worker, and is entitled to certain statutory rights as such, but nothing in these Terms shall be construed as giving the Agency Worker rights in addition to those provided by statute except where expressly stated.

[villamaria]

See how the money was taken from the Ltd in regards any accounts submitted before the Ltd was dissolved. Unless it was a total screw up (nothing declared via the Ltd and the money paid direct to personal account that should have been paid into Ltd ) then some form of record must have been prepared for companies house prior to dissolving.

If any accounts were prepared then it's up to HMRC to want to investigate and request the Ltd is re-opened for them to take action. For such small amounts they may just write off the Ltd debt that was due when the company was closed that otherwise would have become due later. They should have objected to the closure at the time if they wanted to pursue outstanding Ltd debts. The limited personal liability, a benefit of running a Ltd in the first place, may mean it's all done and dusted unless there is sufficient proof of negligence to chase the individual director(s), but for small amounts it may not gain their attention.

So the separation of Ltd potential debts needs assessing as well as the personal debts accrued outside the Ltd.

I've checked all self bills and reconciled against payments made into her bank account

She started with an agency, who charged her £50 to open a limited company. That is the last she ever heard about it.

Since then she has received an email weekly with a self bill invoice for £1000 (as an example) and that is what is paid into her personal bank account.

There are no filings against the limited company apart from when it was being struck off (compulsory)

In response to "See how the money was taken from the Ltd in regards any accounts submitted before the Ltd was dissolved." Money wasn't taken in the sense that it was never there or reported. I know it was taken in the sense that it was billed to it...I just mean I don't think it was ever reported that the ltd had income, do I make sense? Probably not!

[craig1]

Another thing that just occurred to me: if she's getting paid company invoices into her personal bank account, her account and all her spending will be fair game for HMRC's rubber glove investigation as she's chosen to voluntarily mix the two. It makes it both easier and harder to explain away the ignorance around corporate and personal taxation law, "look how little I knew!" and HMRC's response "the law is clear, as is the huge case precedent where we've recovered lots of money from people just like you".

For me, this makes it even more important that you find the money for a proper accountant to do a disclosure to HMRC in the most sympathetic light possible.

[craigy1874]

I see no choice than to go through all the invoices simply add up all the income and then go down to the local tax office and work out a plan to pay off the tax for the outstanding tax year. If any tax has been paid then HMRC will have records.

The only other alternative would be to see an accountant.

This hasn't been an option for a number of years, there are no local offices and certainly no one will assist you with this kind of thing since Self-Assessment was introduced!

[BlasterBates]

I see no choice than to go through all the invoices simply add up all the income and then go down to the local tax office and work out a plan to pay off the tax for the outstanding tax year. If any tax has been paid then HMRC will have records.

The only other alternative would be to see an accountant.

[cojak]

Also get her to register at Money Saving Expert - Debt-free Wannabes

[craig1]

First up, did the company submit annual accounts? Have a look on Companies House for them. That's always a useful baseline.

Second, has she been "paid" since the company was dissolved using a Ltd company invoice? If so, there's a problem. If it has been dissolved, especially in a mandatory dissolution, then the money was never hers.

Third, find the agency contract. You never know, there may actually be a point in there about tax and NI being deducted. At least you'll know for sure... She can get this from the agency without bothering with the accountant.

Fourth, look at Companies House again, was she actually a director or shareholder? If so, sole on either?

Fifth, did she do a tax return or did her accountant do one for her? Get copies of them, she can get them from the HMRC self assessment website, if registered and she has the details. Even if she has forgotten then the Gov.uk Verify thing should get her online and access the same day.

Sixth, log on to her HMRC Personal Tax Account and see what they say about this year's tax status and estimated tax. Just to see if there's any record of any agency work on there.

Seventh, reconcile invoices against payments. Do they match up £ for £? If they do, how was the accountant getting paid? If not, where was the extra money going? Investigate until you're fairly sure you can match £ for £ somewhere.

Finally, take all of the above and seek professional advice, regardless of cost, from a proper accountant (some hang around here) on what to do, especially with regards to HMRC and reporting underpaid tax. Put it specifically in writing to the accountant, or Citizens Advice if she really can't find the few hundred pounds this would take, that she wants to get an accurate figure for HMRC before doing a disclosure to them. That way if they come sniffing before she actually does disclose then she can point to an independent organisation for proof she had the right intentions to fix it. It'll cost far less doing this than bodging it and getting a wilful evasion penalty from HMRC.

p.s. speak to National Debtline or even PayPlan as they won't charge you for debt advice and can usually find a way out of any problem if there's will and clear honesty involved.

[pr1]

Presumably there'll be VAT to sort out as well?

not necessarily on 23k