Someone I know has led a business in New Zealand for a few years without paying any taxes whatsoever. He sold the business a few months ago and I'd love to know whether he is obliged to pay the debts he made while not paying the taxes and if it is considered a tax scam.

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    The answer below isn't wrong, but it is really hard to know, in practice, if the person really did owe any taxes (or really did not pay any as claimed), without a wealth of additional details. Nothing would prevent you from tipping tax authorities off about this person's bragging about purported tax evasion. – ohwilleke Feb 16 '18 at 22:02
  • I tried to preempt the "what if they actually didn't owe taxes?" with the first paragraph. Of course there could be many reasons they never owed tax and therefore didn't pay it, but then that's not a legal question anyway. – Nij Feb 17 '18 at 8:17

We don't know the circumstances. It could be that his business didn't owe any taxes, or that he did clever things to avoid having to pay taxes (legal tax avoidance), or that he did illegal things to avoid having to pay taxes (illegal tax evasion).

In the UK, it is possible to run a company completely legal without having to pay taxes: You must make no profits to avoid paying corporation tax. You must keep your revenue below £83,000 a year to avoid paying VAT, alternatively only sell things that have 0% VAT tax (I think children's clothing fit that category), You must pay employees less than £11,500 a year each to avoid having to pay income tax on their behalf, and you must pay yourself less than about £8,000 a year to avoid paying tax and national insurance. (The company could pay you dividends to increase the money up to £16,500 tax free, but it can't really pay dividends to yourself without making profits).

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    It's also possible to fall to pay taxes that one owes without there being a scam. – phoog Feb 17 '18 at 15:45

This presumes the business did not have an exemption from certain taxes or meet criteria allowing them to have a net zero tax liability.

The business is liable for the tax, and as the operator of the business, the person you know is almost sure to have criminal liability for avoiding tax payments. Given that this normally involves falsifying documents, fraud charges are also likely.

They may also be liable to the new owner as a result of misleading them about the financial state of the business i.e. that it would be likely to face a significant tax bill in the future. Exact outcomes depend heavily on the case itself.

This may be mitigated if the new owner was aware of the tax non-payment or had not performed due diligence in checking the information they received about the business (e.g. by having an accountant check the financial statements).

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