I've been sorting out the accounts for the tiny business of a friend. She has a long term illness and is struggling to get by. She started the business as a way to try to make a living, as she doesn't have the stamina to hold down any of the jobs she can find for very long. She's got a good product, but isn't able to keep up with all the work that's necessary. Not a good way to run a business I know, and the people around her haven't helped by not taking her seriously. A couple of people have done a few calculations on the back of an envelope and told her she's not making any money, which is true, but I've worked out what the problem is, and can see potential if she does things differently.
One of the things she didn't do is register for self assessment, and this is something we were about to sort out. I'd just checked up on the potential penalties, and it looked like there wouldn't be any, as she's making no more than a few hundred pounds a year, so won't have a tax liability. But she's just had a letter from HMRC about her Working Tax Credit, saying she's not eligable for it as they have no record of her being registered as self-employed. I have records of her trading throughout 2012/13, 2013/14 and this year.
Would this letter, as it's about her WTC, count as HMRC catching up with her for not registering, and will this result in any penalties she may have otherwise avoided?
She needs to phone them about the WTC by this Thursday, so should she just register for SA online straight away, so she can tell them she's just done it, and everything will be OK?
No doubt she'll need to explain why she didn't register. Are HMRC likely to accept her health issues as a reason, or is she likely to get hassle over it? She won't handle a phone call that puts pressure on her very well.
She moved house at the weekend! Will registering at her new address when the letter from HMRC was to the old address complicate things?
Anything else that might cause her problems?
I wouldn't be involved in this if she wasn't a friend, and it's something I'd normally avoid like the plague, so would appreciate a bit of guidance.
You could try pre-empting them but the penalties might be automatically issued and a formal appeal would then be necessary. In all probability some or all of these will be cancelled on receipt of the appeal but if not you have to ask is it worth fighting all the way; including going to her MP.
I can't see that there is an option Not to register for self employment, even if her WTC didn't depend on it.
In the appeal process, if HMRC don't want to give way, they will resort to bamboozling and uttering complete nonsense to get their way. I don't think this will happen if the illness can be shown to have genuinely prevented her from registering.
The main problem I have with the penalty system is where the punishment doesn't fit the crime. Your client has already been inconvenienced by the loss or delay of her WTC and I can't see that anyone else has suffered very much.
