Taxman gets tougher on sole traders who fail

Freelancers and the self-employed are being warned not to expect “any leniency” from the taxman in the event that they don’t make it as sole traders.

Advisors at Wedlake Bell say that the number of failed sole traders with unpaid tax bills who subsequently receive Bankruptcy Restriction Orders (BROs) is growing by more than 21 per cent.

A BRO is a court order that restricts a person’s access to credit, and can prevent them from becoming a director of a limited company for up to 15 years.

Although bankruptcy does not prevent a self-employed person from trading again, it automatically imposes certain restrictions on them, and potentially a BRO – a “means to protecting the public from the dishonest”.

In the latest orders, the majority of the traders had consistently failed to pay their taxes to HM Revenue & Customs when they operated through a partnership or as a sole trader.

In total, 443 individuals had BROs (or equivalent undertakings) brought against them in the 12 months to March 2011, because of “neglect of their business”.

Edward Starling, head of business recoveries at Wedlake Bell, reflected: “The authorities are making an example out of business owners who have allowed their businesses to run up insurmountable tax debts by banning them from involvement in senior management positions of a company for a long time.”

But he believes officialdom has another motivation: “Given the state of the public finances, the government is keener than ever to minimise any non-payment of tax.

“HMRC will want to send a strong signal to the owners of struggling firms that if their businesses collapse without paying tax, they cannot expect any leniency.”

 

 

9th September 2011

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