Tax Trouble – Blew the Money
At the end of my first year of IT contracting, and after I had wasted money on a bad investment and a car I could not even drive, I started to get into a panic. I worried I was in Tax Trouble.
I knew that, as a contractor, I would have to pay tax. The trouble I had was that I didn‘t have it. Being new to the game, I hadn‘t realised that there were some allowances that you could claim for in order to cut back on your tax (this was well before IR35).
Therefore I calculated what I though my tax would be. I calculated at the full rate, which I think was around 35% at the time, taking into account allowances, but no expenses. I calculated that I owed what would be the equivalent of £13,000 in today‘s terms.
The trouble was that I only had around £5,000. I didn‘t even realise that you had about 9 months to pay up.
Simple Answer to Tax Trouble
So what was I to do?
It was simple. I had to avoid everyone, HMRC, Accountants etc. until I had earned enough money to pay it when I was in tax trouble. I knew that there would be penalties, but what could I do.
Luckily a job came up in Holland which paid more than twice as much as the contract rate I was getting in Britain – so I quit my current contract and took it. I couldn‘t believe my luck.
It didn‘t work out, however. It was for the Dutch Hospital system just at the time that their Government were cutting back on the subsidies that they were giving to it.
Therefore all contractors had to go!
I was back in the UK with just a month‘s salary. As most contractors know it takes time to get another job. It took me four months to get one.
So what did I have to live on? Why the one month‘s money and the 5 grand that I‘d been saving up for my tax. My tax trouble worsened.
It‘s amazing how quickly it can go when you are renting in London.
Tax Trouble Mounting
My tax was now approaching 7 or 8 months late and I didn‘t have the money.
So what did I do?
Worry – that‘s what I did.
But I knew it was important to tell nobody. There wasn‘t much point in getting an accountant, I told myself. I didn‘t have the money to pay the tax anyway – and there was also the possibility that he might shop me to HMRC.
All this is complete nonsense of course. The last thing I should have been doing, when in tax trouble, was hiding away – especially from an accountant.
When you have tax trouble your accountant is your best friend. As I discovered later he always knows what to do. He can help with your tax debts.
As my accountant asked me, when I eventually phoned him up worried to death, ‘What can they do to you when you are in tax trouble? They can‘t kill you. Also, they can‘t even take money off you if you haven‘t got it’!
‘They could put me in gaol, though’ I said.
‘Don‘t be silly’ he said. ‘If they put everybody in gaol who was in tax trouble, they wouldn‘t have enough gaols in Britain to keep them in. They never ever put people in gaol for not being able to pay their taxes. Even when people have been evading taxes, as long as they are honest with them in their final declaration, they won‘t put you in gaol’.
‘They have much bigger fish to fry than you. You‘re not that important to them. They just want to get as much as they can from you and get on to their next case. It‘s not worth their while pursuing you.’
Never did I feel so glad to be so unimportant. Although I was ambitious I was never so happy to be though of as ‘small fry‘.
I got it all sorted out long ago, and any time in the future when I had any taxÂ trouble due to time out of work, when I called my accountant, he always said to me ‘You should have called my before, instead of doing all that worrying’ and he was always able to sort it out fairly easily.
There must be many contractors out there waking up in the middle of the night in a cold sweat worrying what is to become of them. Perhaps their money is running out and they are in tax trouble. Maybe they haven‘t worked for many months. Perhaps they have no money to pay their taxes, which are imminent.
If you are one of them, don‘t do what I did and hide away.
Your very best friend in these circumstances is your accountant. Keep in close touch with him or her. He has seen your situation several hundred, maybe several thousand times, and will know how to deal with it.
Don‘t do all that worrying on your own. Your accountant will be able to sort it for you.