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Need some advice for relative desperately?

TankyTanky Posts: 3,647
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I don't know where else to ask. He does not know I'm posting but I'm very worried. Well first of all my relative is a good person who never committed any crime and never been arrested in his enitre life.

He was recently made bankrupt by HMRC for oweing unpaid debt, I believe it was VAT with interest and penalties. He was self employed with his own business and the business never made any money, and was ending up oweing money to a lot of people. I don't want to give any specific numbers because I wish it to remain private. The only figure I will say is that HMRC wanted him to pay around £10000 per money to clear the debt, which was unaffordable in his situation. He was willing to pay the debt off over a period of years but HMRC said no and he was forced into bankrupcy.

The thing I'm worried most about is that HMRC wants to see the business records but he has told me that he does not have any or are very incomplete, this was due to it being stored on a very old computer system of the old business, and the property was returned back to the owner, he has said that the computer was corrupted and the data is lost. So he does not have any records left to show. He is due to see the bankrupcy people later this month, but he has told me that he could face prison if they feel that he caused the bankrupcy or mismanagement of the business. He has told me also if it does mean prison he will accept this. I don't feel this is right because having worked in the business; it was long hours serving customers, some who were sometimes abusive, having no money and worrying how to make ends meet, working 7 days a week with no holidays apart from the only day of the year Christmas Day(were open during one of years for half a day too) for years and he has a family. Is there any ways to prevent this from happening?
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    Frankie_LittleFrankie_Little Posts: 9,271
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    He needs professional advice, quickly. I don't know much about the situation he's in, but if it was me, I'd contact Citizens Advice as a starting point. They will be able to point him in the right direction for the help he needs.
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    technologisttechnologist Posts: 13,382
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    And the quicker the better....... As he ought to have sought professional advice when HMRC started investigating and certainly at bankruptcy proceedings ......
    ( and really each year to look at his accounts)
    So there is a lot of catching up,to do.
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    flowerpowaflowerpowa Posts: 24,386
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    Your relative has a whole host of excuses, which I'm sure the HMRC has heard before from it's other clients. Everyone has to pay their taxes, he must have known that but instead, buried his head in the sand.
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    varialectiovarialectio Posts: 2,377
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    Tanky wrote: »
    I don't know where else to ask. He does not know I'm posting but I'm very worried. Well first of all my relative is a good person who never committed any crime and never been arrested in his enitre life.

    He was recently made bankrupt by HMRC for oweing unpaid debt, I believe it was VAT with interest and penalties. He was self employed with his own business and the business never made any money, and was ending up oweing money to a lot of people. I don't want to give any specific numbers because I wish it to remain private. The only figure I will say is that HMRC wanted him to pay around £10000 per money to clear the debt, which was unaffordable in his situation. He was willing to pay the debt off over a period of years but HMRC said no and he was forced into bankrupcy.

    ...

    So he owes money to other people as well? How many of those are in danger of losing their own businesses due to his unpaid debts?

    Doubt they would be describing him as a "good person"
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    TankyTanky Posts: 3,647
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    Thank you to the guys who wanted to give advice.
    flowerpowa wrote: »
    Your relative has a whole host of excuses, which I'm sure the HMRC has heard before from it's other clients. Everyone has to pay their taxes, he must have known that but instead, buried his head in the sand.

    He never said he wasn't willing to pay the taxes, he wanted to pay it over a longer period of time, he made an offer to HMRC but they said no. He's already lost everything of value but HMRC wanted him to pay over £10000 a month or go bankrupt, those were the terms, which was impossible for him to do because he doesn't earn anywhere near that much. Who even earns that much money? Unless your boss of a big company, he was just a small business owner.

    I've never said he owed other businesses. Money loaned by relatives and friends, that he has been slowly paying back with whatever he can.

    How can he pay anything if the busniess went under and made a financial loss, the business wasn't making enough money, it all went to council tax, rent and bills. He remortgaged the house just to keep the business going, he paid all his employees in full even when the business went under, so he doesn't owe any of his employees a penny, giving all of them their redundancy pay because it was the right thing to do. He didn't want the business to go bad, it was just not making enough money and the expenses were more than what he'd made.
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    horseychick28horseychick28 Posts: 1,713
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    He must have taken some money or he wouldn't be liable for vat and he surely has paper records receipts invoices surely. He needs a specialist accountant or he will face pretty stiff penalties unfortunately
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    babeloguebabelogue Posts: 1,008
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    I'd avoid Citizens Advice, they can be next to useless for debt advice, especially if the case is complicated.

    He needs to seek advice from a licensed insolvency practitioner ASAP. They can advise him on what is likely to happen with the bankruptcy and also advise him on his options. All being well, the insolvency practitioner could maybe propose an IVA to creditors and your relative could then apply to have the bankruptcy annulled. Depends on lots of different factors though. The quicker he seeks advice the better.

    Time is of the essence as costs will be being incurred in the bankruptcy, and these can run into the thousands very quickly, and your relative will have to pay these costs, one way or another.

    I'd google insolvency practitioners in your relative's area and take it from there.
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    babeloguebabelogue Posts: 1,008
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    Tanky wrote: »

    The thing I'm worried most about is that HMRC wants to see the business records but he has told me that he does not have any or are very incomplete, this was due to it being stored on a very old computer system of the old business, and the property was returned back to the owner, he has said that the computer was corrupted and the data is lost. So he does not have any records left to show. He is due to see the bankrupcy people later this month, but he has told me that he could face prison if they feel that he caused the bankrupcy or mismanagement of the business. He has told me also if it does mean prison he will accept this. I don't feel this is right because having worked in the business; it was long hours serving customers, some who were sometimes abusive, having no money and worrying how to make ends meet, working 7 days a week with no holidays apart from the only day of the year Christmas Day(were open during one of years for half a day too) for years and he has a family. Is there any ways to prevent this from happening?

    Forgot to address this part.

    Prison is a possibility, but unlikely to be fair. This is usually reserved for the most severe of cases i.e deliberately defrauding people and ending up losing them significant sums of money.

    If the bankruptcy continues, he'll likely end up being disqualified as a director and be given a bankruptcy restrictions order for failing to keep proper records.
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    Babe RainbowBabe Rainbow Posts: 34,349
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    What sort of business must he have been running that he could end up owing the VAT enough that they would expect £10k per month and yet he has NO paper documentation ?
    Receipts, Delivery Notes, Invoices ... ? Even if he personally has lost them, he could easily get them from his suppliers / customers. They can't all be as commercially inept as he is, surely ?
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    TagletTaglet Posts: 20,286
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    Has he not filled in a vat return?
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    TelevisionUserTelevisionUser Posts: 41,417
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    He needs professional advice, quickly. I don't know much about the situation he's in, but if it was me, I'd contact Citizens Advice as a starting point. They will be able to point him in the right direction for the help he needs.

    That is indeed good advice and the nearest office can be found here http://www.citizensadvice.org.uk/index/getadvice.htm (just plug in the postcode) and the relative might care to make an appointment first thing on Monday morning.
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    Keefy-boyKeefy-boy Posts: 13,613
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    babelogue wrote: »
    If the bankruptcy continues, he'll likely end up being disqualified as a director.
    If he's facing personal bankruptcy for unpaid VAT he's clearly running the the business as a sole trader, not as a director of a limited company, so disqualification to be a company director is unlikely.

    If he had operated the business through a limited company he could probably walk away from this unless it could be shown he'd continued to trade whilst knowingly insolvent.
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    TogglerToggler Posts: 4,592
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    Avoid CAB at all costs, they will have no one able to deal with something this complex.

    I own a business and am VAT registered and tales such as these are a bit 'smelly' in my experience. He should take all his books to his accountant - but no doubt he didn't bother with one hence the problem with VAT. So he should find an insolvency practitioner - and pay them to get him out of this mire where possible.

    This story beggars belief to be honest.
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    TelevisionUserTelevisionUser Posts: 41,417
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    Toggler wrote: »
    Avoid CAB at all costs, they will have no one able to deal with something this complex.

    I own a business and am VAT registered and tales such as these are a bit 'smelly' in my experience. He should take all his books to his accountant - but no doubt he didn't bother with one hence the problem with VAT. So he should find an insolvency practitioner - and pay them to get him out of this mire where possible.

    This story beggars belief to be honest.

    Those are all valid, constructive and relevant points that have been raised above. If the person concerned literally has no money left and cannot afford to buy in proper professional help, would a specialist debt advisory service such as StepChange or an equivalent be able to help in this case?
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    burton07burton07 Posts: 10,871
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    His debt to HMRC at £10,000 per month, is that unpaid VAT or unpaid income tax? If it is unpaid VAT then he must have some profit to owe VAT. If it is unpaid Tax then he must have made a profit to be taxed on. I don't think we are getting the full story here. I don't know how the OP can expect advice off randoms on DS without having the full financial details.

    What sort of business was it?
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    cris182cris182 Posts: 9,595
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    burton07 wrote: »
    His debt to HMRC at £10,000 per month, is that unpaid VAT or unpaid income tax? If it is unpaid VAT then he must have some profit to owe VAT. If it is unpaid Tax then he must have made a profit to be taxed on. I don't think we are getting the full story here. I don't know how the OP can expect advice off randoms on DS without having the full financial details.

    What sort of business was it?

    One apparently without records of transactions....Worryingly
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    edExedEx Posts: 13,460
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    Surely your relative's accountant should have copies of these records?

    Sadly it's a legal offence not to keep company records up to date and in good order. Ignorance is no defence, so they are likely to throw the book at him. Even with good help you need to prepare for a less than happy outcome.
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    Absolute RotterAbsolute Rotter Posts: 787
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    If the business never made any money he wouldn't owe HMRC a lot of money
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    edExedEx Posts: 13,460
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    If the business never made any money he wouldn't owe HMRC a lot of money
    Unless he collected VAT and never passed it on.
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    Absolute RotterAbsolute Rotter Posts: 787
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    edEx wrote: »
    Unless he collected VAT and never passed it on.

    But you only pay over the net amount. If he didn't make a profit the input tax and output tax amounts would not leave him with a VAT liability.
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    burton07burton07 Posts: 10,871
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    edEx wrote: »
    Unless he collected VAT and never passed it on.

    If that is the case,he must have had a massive turnover to owe HMRC £10,000 worth of VAT per month. Doesn't add up.
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    edExedEx Posts: 13,460
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    But you only pay over the net amount. If he didn't make a profit the input tax and output tax amounts would not leave him with a VAT liability.
    VAT has nothing to do with company profit. You add it onto your prices and collect it from your clients, then once every three months deduct the VAT you've paid out on costs related to the running of the business and send the balance to HMRC.

    You must keep records of every cost you incur that causes a difference between what you've collected and what you've paid to HMRC.
    burton07 wrote: »
    If that is the case,he must have had a massive turnover to owe HMRC £10,000 worth of VAT per month. Doesn't add up.
    Not necessarily. If he'd for example underpaid over a period of five years, running up a £30k debt, then HMRC would reasonably ask for that amount to be paid back in three monthly instalments.

    The VAT side of HMRC want debts cleared as soon as possible. You don't piss off the VAT man.
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    burton07burton07 Posts: 10,871
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    edEx wrote: »
    VAT has nothing to do with company profit. You add it onto your prices and collect it from your clients, then once every three months deduct the VAT you've paid out on costs related to the running of the business and send the balance to HMRC.

    You must keep records of every cost you incur that causes a difference between what you've collected and what you've paid to HMRC.

    Not necessarily. If he'd for example underpaid over a period of five years, running up a £30k debt, then HMRC would reasonably ask for that amount to be paid back in three monthly instalments.

    The VAT side of HMRC want debts cleared as soon as possible. You don't piss off the VAT man.

    But the VAT man would have chased him for the VAT liability well before 5 years was up. They normally start reminding you soon after the 3 monthly return is due. Maybe he was paying no VAT at all and wasn't registered. In any case he would have to be turning over more than £72k for the VAT man to be after him.
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    Absolute RotterAbsolute Rotter Posts: 787
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    edEx wrote: »
    VAT has nothing to do with company profit. You add it onto your prices and collect it from your clients, then once every three months deduct the VAT you've paid out on costs related to the running of the business and send the balance to HMRC.

    You must keep records of every cost you incur that causes a difference between what you've collected and what you've paid to HMRC.

    Not necessarily. If he'd for example underpaid over a period of five years, running up a £30k debt, then HMRC would reasonably ask for that amount to be paid back in three monthly instalments.

    The VAT side of HMRC want debts cleared as soon as possible. You don't piss off the VAT man.

    But the business didn't make any money. So the input tax is at least the same as the output tax. There is nothing to pay over. The VAT claimable on the expenses covers the VAT payable on the sales.
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    burton07burton07 Posts: 10,871
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    But the business didn't make any money. So the input tax is at least the same as the output tax. There is nothing to pay over. The VAT claimable on the expenses covers the VAT payable on the sales.

    VAT is paid on sales minus purchases. Maybe his payroll and other overheads used up the gross profit.


    If he didn't pay his VAT then it's likely he didn't pay his PAYE and NI either.
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