Thanks for your question
Why did the accountant file that he only earned £10,000 ? And why did your friend sign to agree the figures that the accountant submitted
Was this income paid with no tax deducted?
It wasn,t a qualified accountant who did the work!
Basically they complete returns for a lot of the Romanian labourers who come over here so just assumed he was in the same category ( I know!)
Fortunately my friend didn,t sign the return & they submitted it for him as he was already back in eastern europe by then.
No tax was deducted as he was paid as an agent to look for hotel refurbishment work by the contractor.
Thanks for your response
There is recourse (if your friend wishes to) to sue this individual, as clearly they have made the situation worse for him.
However that aside the position would be as this
Earnings £31,000 less personal allowances for 2010/2011 £6475 - leaves £24,525 liable to 20% tax = £4905 plus Class 4 National Insurance which will be £5715 national Insurance free - leaving £25,285 liable to 8% = £2022.80 - so a total of £6927.80 due plus interest and penalties.
You do not advise whether your friend had any expenses arising which he was out of pocket by, but if these were wholly business related, then these can be deducted from the income earned.
Plus even the return filed with £10,000 income would have seen a tax and Class 4 national; insurance charge arise, so this I assume has been paid, and can be deducted from the overall position.
I would advise that your friend should hire a reputable accountant on his return to the UK to
1) amend the tax return for him
2) Negotiate the penalties charged on the basis of what has taken place and the fact that he did not sign the return in question
3) Offer advise on recourse for your friend against this individual
Do feel free to ask any follow up questions, but it would be appreciated if you could rate the level of service I have provided.
4) Ensure all correct expenses are claimed to reduce this tax bill
My friend has paid all his class 4 NI ( & continues to do so!)
I have already submitted business expenses ( only put down allowable expenses)
So by my calculations he owes around £2,500 in tax?
The girls who did his tax are friends of friends -so its a bit political! - He realises that he was a bit silly to trust them.
My main concern is whether I should declare that he has this property?
He has the resources to pay the above amount. He seems sick with worry that the UK revenue could take his flat!
Thanks for your response and apologies for the delay in mine, I have been with clients this evening.
Your friend pays Class 2 National insurance, which is paid monthly/quarterly and is at the current rate of £2.70 a week and this contributes towards a basic state pension (amongst other things) but Class 4 is liable on self employed income, and the proceeds go into the government coffers - towards Education, Health and Fire services etc
Yes you must declare that he has this property, and HMRC will not take it, as long as he rectifies the tax position and if unable to pay all in one go, then negotiates with HMRC with a payment plan.
But the bill will be more than £2500 as there is Class 4 to pay, plus interest and penalties.
But this as a lump sum, will certainly appease HMRC, and any balance remaining he should offer what he can afford per month, and agree to this being collected y direct debit - this always encourages HMRC to allow a payment plan.