Is my brother in law guilty of tax fraud?

[Outdoorsman]

My sister is 55 and her husband is 65. He was injured in Northern Ireland around 1969 during the "Troubles" whilst serving in HM Forces and has received a war pension from the Veterans' Agency in Blackpool since his medical discharge in 1977. This presently amounts to about �10,650 a year, including: war disablement pension; invalidity & comforts allowances and unemployability suppliment. This 'war pension' is stated as non-taxable.

He also receives a pension from the Army Paymaster, Armed Forces Pension Scheme. At present this amounts to about �4,175 a year - also stated as non-taxable.

His total un-earned yearly income is about �14,825. He has a small part-time open-air job - 4 to 5 hours a week, which pays him about �25 a week. He does this just for the exercise and to keep fit.

My sister is worried that he is avoiding paying tax. He has never filled out a tax return since his medical discharge from the Services in 1977. She is a part-time Occupational Health Nurse and works through an agency.

My questions are: Is he guilty of a criminal offence? Should he be reported? Would a prison sentence be possible.

My brother in law has a very clean slate - not even a motoring offence - and is very sincere. If he thinks he is doing wrong, he will report the matter himself. There are no children, they have no debts or mortgage and own their house outright, they don't smoke or drink and they don't live a lavish lifestyle. They have a small car and have plenty of money in the bank.

I'm not too sure if "Money & Finance" is the right place to put these questions, but thanks for any answers - in advance. I will reply to all who contribute.

[Loosehead]

Well there is a tax free allowance and then he should be paying tax on the rest. Yes it is illegal and when the revenue catch up they will demand full payment + interest back to the year dot. They can force the sale of assets too. They will catch up, they always do. There's a story in the local paper round here of a taxi driver who had paid no tax for over 20 years. They basically confiscated his house!

[Outdoorsman]

Thanks Loosehead. Did he end up in prison?

[Loosehead]

No, generally they give you the chance to pay up before prosecution. Unless you're Ken Dodd or Lester Piggot of course!

The best thing is to ask for a tax return and fill it in for the last year, that shows willing, if and when they start an investigation.

[spacechimp]

What I'm not sure about is having a job when he's receiving "unemployability supplement". Is that legal?

[sandbach99]

I advice him to get in touch with the British Legion or some other ex-servicemen group, all his money from the War vetrans group is non-taxable, the only thing there is is he allowed to work at all?, he may be able to. If he isn't allowed to work I suggest he gives up immediately as he would lose more than �25.
If he is able to work only his �25 is treated as income and with his tax-free allowance he should be out of tax, he may even be able to give his wife the tax allowance therefore reducing her tax bill.

[dzug]

Yep - his only taxable income is the �25 a week which is well under his tax allowance.

The other pensions are (in his circumstances) tax free.

http://www.veteransagency.mod.uk/pdfolder/servicepenspfd/chart.pdf may be useful

sandbach's advice is also relevant.

[spacechimp]

I wasn't meaning the tax on this �25, I mean having a job and receiving "unemployability supplement". That sounds a bit dubious to me.

[Outdoorsman]

Thanks again Loosehead. My B-in-L doesn't have a computer, but he's off down to the local tax office today for a tax form and will take your advice.

Spacechimp and sandbach. The unemployability suppliment is what his sister is worried about and he has informed the Veterans' Agency about his part-time job, which only dates back to last August - he forgot about the suppliment in his pension. He's self-employed: a Betterware door-to-door distributor, like I am, but in a different area. Its not a very strenuous job, but it keeps him fit both mentally and physically. He'll pack it in if advised to do so.

Thanks for the link dzug.

Many thanks again to you all for your goodly advice.

It's like a great weight has been lifted off our shoulders!!!

[themas]

If, as you say, all his Forces payments are non-taxable then his only taxable income is the �25 p. wk. and he has no tax liability. Whether the "unemployability supplement" really means he is not allowed to work at all would seem to be something for the Forces authorities and not the Tax Office.

You say he is 65, so he should presumably be claiming his State Retirement Pension. That is taxable and if he gets a full pension and goes on with the �25 p. wk. then he will have a small tax liability.

[Outdoorsman]

We'll be going through my b-in-law's tax form next week themas. He should have had it in by the 6th, but they're giving him an extra couple of weeks to complete it. His tax bill comes to something like �160. Not a lot.

Thanks.