Worthy Cause

ROSINA PULLMAN outlines some recent cases where TaxAid has helped those who cannot afford representation.

AS ALL READERS of Taxation will know, TaxAid exists to help people who cannot afford to pay for tax advice. We know many tax professionals give their time to help those who cannot afford to pay fees, and we would like to remind readers that they are welcome to telephone TaxAid if they come up against an unfamiliar problem.

On the suggestion of the editor, who is concerned lest there is shortage of cerebral challenge for tax professionals over the festive season, we have set down a few of our recent cases for readers' consideration.

Firstly, we should dispel the myth that those who fall foul of the taxman are either well off or irresponsible. We do see clients who are frightened of the contents of the brown envelopes marked with the stamp of the Inland Revenue and hence have not acted in a timely way in their best interests. However, someone only has to have income of £89 a week for tax to kick in, and those on low incomes have to try to understand the tax system for themselves, grapple with self assessment and now with the additional complexity of tax credits. It is much more difficult both to cope with the requirements of the tax system and to set aside money at this level of income. When the Revenue gets these people's tax wrong, launches an enquiry or chases them for tax they do not owe or cannot pay, they cannot afford professional advice.

For tax advisers who are giving pro bono advice, the first question, sadly, in our experience, often overlooked by debt advice agencies, is the same as any tax professional would ask: is the amount correct? We find that, because the self employed do not tend to understand allowable expenses, they have not filed a correct return. Alternatively, their profits have declined and the figure includes payments on account that are too high.

Diminishing business

Our client's story is particularly apposite at this time of year. Sarah was a self-employed conference organiser, but business was poor and she ceased trading in late 2001. With no money coming in, she had fallen behind with her mortgage payments. She rang us when threatened with a distraint visit from the Collector and feared that she would lose her home. She explained to us that she had not had enough money to set aside for the Revenue, and then under pressure from the Collector had reneged on her mortgage repayments. We rang the Recovery Office on her behalf while a volunteer had a look at her tax returns. It seems that she had not filed a tax return for 2000-01 and, as a result, a determination had been made based on the profits of 1999-00. The payments on account for 2000-01 more than covered the tax for that year and the reduced payments on account for 2001-02. This entitled her to a repayment, and she was able to pay off the outstanding mortgage repayments to save her home.

Some points worth considering when helping clients deal with tax debt include:

• Failing to file a tax return the year following unanticipated cessation of business is a common hazard for clients who have previously had their accounts handled by a professional, in that it would not occur to those who have previously had an accountant, to inform the Revenue themselves that they are no longer trading. Equally, they may be unaware of the significance of a determination, and this may well be their introduction post retirement into the world of tax.
• When the Revenue will not agree to instalments, a County Court judgment is not as bad as it might at first seem because the court may allow realistic instalments based on income and expenditure.
• The pro bono client may, however, be surprised to hear that interest will accrue under agreements to pay by instalments, whether direct or via the court. Therefore the adviser should ensure that the client is aware of which years are covered by the judgment. The preference is that all their tax debts should be listed if possible, or the sad truth may be that they pay off one debt under the judgment only to find that further interest and penalties have accrued for other liabilities not taken into consideration by the court.

Sarah's work as a conference organiser raised the question as to whether this client is truly self employed. Furthermore, the increased National Insurance contributions next year will not help reduce the numbers thrust into self-employment, like the next client, Matthew.

Employment status

Matthew is an antique mirror restorer who had been enticed to join a new employer by the promise of £300 a week in his hand (he had previously been paid £200 through pay-as-you-earn). In the beginning, Matthew was clear that he had been an employee, having been required to work between set hours. He had expected to get a payslip and, it seems, had subsequently pestered his employer for one. After several months, Matthew was told that he was in fact self employed, and that the accountant to the business would help with his tax return and give him money come the filing date. Matthew, while not happy with the arrangement, needed to keep his job. But, in the event, some months later he was told he was no longer needed and came to TaxAid to sort out his affairs with the Revenue.

This is an absolutely classic case which failed all the tests of self employment, and begs the questions:

• To what extent would the Revenue argue that he had colluded in the situation? (Matthew cannot read and, having accepted cash, felt himself to be very vulnerable.)
• With the new tax credits, was he in fact any better off taking the apparently higher paid job?

Tax credit nightmare

Filling in tax credit applications is also a minefield if not done correctly, and some painful clawback problems are being brought to us.

TaxAid client, Daisy, is a sculptor scraping a living for herself and daughter. She had filed a tax return (through an accountant) and had applied separately herself for working families' tax credit, which she was awarded as a self-employed working parent on a low income. It is to be hoped that she is a better sculptor than an accountant since she filed two apparently conflicting claims regarding her income on these two forms, muddling personal and business expenses, different estimates of personal use percentages on her home and consequently reporting different anticipated profit. The Revenue now wants to claw back most of the award and impose penalties which she cannot find on her very modest income.

We have yet to see how Daisy's case will be resolved. But the above illustrates that clients do not understand the concept, similar to that under self assessment, of the Revenue practice of 'process now, check later' and therefore assume that an award for tax credits implicitly accepts the figures underlying the claim.

The new tax credits will affect many people. TaxAid is holding a conference on 7 February on the subject, details of which can be found elsewhere in this issue, or contact TaxAid at the address below for information.

Ten years old

This December, TaxAid celebrates ten years of helping thousands of people like those described above. Throughout this time, the tax profession has supported TaxAid in many ways, through speaking at our conferences, volunteering as tax advisers, and through donations. We and our clients owe them all an enormous debt of gratitude.

Like many charities, our continued existence is dependent on our supporters. If readers would like to help, for instance by applying to become an adviser or making a donation, please contact us at: TaxAid, Room 304, Linton House, 164-180 Union Street, London SE1 0LH, tel: 020 7803 4950. A gift aid form for donations can be accessed on the Taxation website at www.taxation.co.uk/TaxAid; a password is not needed to enter this part of the site.

Thank you on behalf of thousands of taxpayers, and wishing you a happy Christmas and prosperous New Year.

Rosina Pullman is director of TaxAid.

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