HMRC tax debts and bankruptcy

[HarX]

My sister suffers from bipolar and struggled to get a job so she decided to try going self employed for a while but it didn't work out. She didn't really know what she was doing partly due to her mental health problems and partly due to naivety. She didn't know that she had to register herself as self employed and she didn't declare any of her income believing that because she was earning under the tax threshold she didn't need to pay income tax and therefore wasn't required to declare.

Now she's being asked to pay lots of money that she can't possibly afford. She can't prove what she earned when she was self employed so the taxman is simply making an estimate which is way more than she made. They are adding interest and penalties too. This has put her in a very dark place.

I have read that fraudulent debts are not discharged after bankruptcy but I don't know if that includes income tax debts. Is bankruptcy likely to wipe her HMRC debts even if the taxman view what she did as deliberate concealment/fraud?

[Amethyst]

Re: HMRC tax debts and bankruptcy

Oh I feel for you dealing with this. they can be a pain.

Did your sister have a business bank account set up at all ? Or does she have her bank records if not to help show what money she actually had coming in from the self employment over that period ?

What exactly have the HMRC asked her for, how much approx and what reason have they given ?

[HarX]

Re: HMRC tax debts and bankruptcy

No she didn't have any business bank accounts or anything like that. She wouldn't know what a business bank account was. I know people will say that she's just pretending that she didn't know what she was doing but she really didn't. She did a hairdressing course and then tried to get a job. But because she hadn't worked for so long due to her mental health problems she had no references so she kept getting knocked back from every job she applied for.

So she just started placing ads in the paper doing her own thing. She got a few jobs here and there but HMRC are treating her like she was working full time 8-6 and apparently it's down to her to prove that she wasn't. Even the police/CPS have to prove beyond a reasonable doubt that a murderer is guilty but it seems that if you're a hairdresser trying to start up on your own you're guilty unless you can prove innocence.

HMRC want 3k from her which she doesn't have and isn't going to have anytime soon. This debt isn't going away by itself but she has nothing like that amount. It might seem like a small amount to go bankrupt for but if it would give her a fresh start then she'd do it. She has zero assets so she doesn't have a lot to lose by going bankrupt really. But there's no point in going bankrupt if your debts are still waiting for you at the other end of the process.

I know that tax debts are supposed to be wiped by bankruptcy but my question for anyone who might know is if hmrc say that she deliberately withheld tax (as opposed to carelessness) would her tax debts still be discharged after bankruptcy?

[Amethyst]

Re: HMRC tax debts and bankruptcy

Was she being paid cash in hand ? ( so nothing through her bank at all ?) Do you have any idea at all how much she earnt ? ( Did she keep an appointment diary or anything ? )

Has she made an appeal ?

Good on your sister btw for getting herself trained up and in a position to work, and for trying to get out there. A bit of support and encouragement from the government wouldn't go amiss really.

Have you spoken with her MP at all actually ? If you have tried everything else it might help.

I can't help on the bankruptcy side I'm afraid - [MENTION=48934]Debt Camel[/MENTION]; would be more knowing how that works regards Tax. For me, it sounds extreme - unless you really are at the end of your tether.

Oh, my OH went and signed up for self assessment, when he wasn't self employed, he'd flirted with it then found another job.... so he did nothing about it till after we have a near £2k pile of hassle come to the door - then I had to try help him sort it out. And he's got no bloody excuse other than the system is confusing and difficult. So really, it's not your sisters fault.

[HarX]

Re: HMRC tax debts and bankruptcy

Yes it was all mainly cash in hand with the odd cheque here and there. She didn't declare any of it but that's because there really wasn't very much to declare. She honestly believed that she had to be earning above the tax threshold to pay tax so she didn't think anything more about it. I think many people could fall into the trap of thinking that if they're not earning enough money to be taxed then why would they need to tell the taxman.

Even if it wasn't all cash in hand and she was being paid into a bank account I get the feeling that hmrc would simply be able to say "we think you earned more and you have to prove we're wrong" because that appears to be what is happening. It's terrifying to think that the burden of proof is actually on the accused. HMRC were going to try and get one scaffolder to pay a million pounds because he couldn't prove his income. If you can't prove the income then they seem to be able to just make it up. I don't know why this isn't more of a big deal. http://www.telegraph.co.uk/finance/p...npaid-tax.html

[Debt Camel]

Re: HMRC tax debts and bankruptcy

The poster has already asked about this on Debt Camel and I have signposted to suitable sources of advice about tax debts : Business Debtline and TaxAid.

[HarX]

Re: HMRC tax debts and bankruptcy

Thanks debt camel