Declare your income to HMRC if you have not or face prosecution and penalties

Undeclared Income

In April 2014, HM Revenue & Customs (HMRC) launched a campaign to give individuals, who are employed and also have untaxed income from self-employment, an opportunity to bring their tax filings up-to-date. The Second Income Campaign was launched for individuals who are taxed under Pay-As-You-Earn (PAYE) by their employer, and also have another source of income from self-employment, which is not declared to HMRC. The campaign will last until April 2017 and once an individual has notified HMRC that they have undisclosed income, they will have four (4) months to compute and pay the liable tax, plus interest and penalties, and National Insurance contributions (NIC).

If the HMRC gets to know that an individual has undeclared income which is taxable, he / she might be charged interest and penalties and for serious cases there might even be imprisonment and prosecution. Through sophisticated softwares, HMRC vigorously is searching for non-registered businesses and under-declared or undeclared income. HMRC is also scanning information on credit / debit card purchases and sales, and online transaction data. The state of affairs is very serious, and a people can even benefit from voluntarily disclosing the position to HMRC as:

• Before HMRC suspects anything and sends a letter, self-declared cases are unlikely to be prosecuted
• If an individual who has self-declared the second income cooperates fully during investigation, the payable penalties might be reduced

It is helpful to know that HMRC often tries to reach to an agreement with an individual regarding the payable tax.

Is It Imperative to Inform HMRC?

If an individual has not told HMRC about the second income, he / she must tell HMRC about the earnings from self-employment. Such a situation could have aroused because:

• The individual didn’t realise that they need to inform HMRC about it
• The individual was unsure of how to declare the second income
• Funds were not available to pay the liable tax

As stated earlier, if the HMRC is contacted earlier, they may consider the case more favorably.

Income Tax

Individual having income from two sources must tell HMRC about it income they have already paid tax on, e.g. wages. Also, the HMRC should be informed about the other income, which is taxable and hasn’t been declared in a Self Assessment tax return. This income could include earnings from:

• Property rental income
• Capital gains, e.g. from sold property, shares or valuable items
• Self-employment work, including buy or sell items regularly on the internet; individual needs to register as self-employed

Overseas Income

Residents in the United Kingdom must report foreign income in a self assessment tax return. If a UK resident does not report the foreign income, he / she may have to pay both – the undeclared tax as well as a penalty worth upto double the tax amount payable. Individuals can even be prosecuted if they give false information regarding the payable tax. Individuals may be eligible to inform HMRC regarding undeclared income through an ‘offshore disclosure facility’ if:

• They haven’t informed about foreign income
• They are not paying the correct tax amount
• In the past, they made an incorrect claim
• They have paid less tax

If an individual is not eligible to use an offshore disclosure facility, but still has tax amount to declare, he / she can contact HMRC’s Offshore Co-ordination Unit.

Address:

HMRC Offshore Co-ordination Unit

E-mail: ocu.hmrc@hmrc.gsi.gov.uk

Contact number: 03000-530-310

Timing: Monday – Friday, 9 AM to 4 PM

Other Taxes

Individuals must register for:

• Corporation Tax, if they run a limited company
• VAT if the taxable business turnover per annum is more than £81,000
• PAYE for employers if he / she employ people

Who Can Use the Second Incomes Campaign?

Individuals can use the campaign if they are employed, and also earn income through self-employment. A second income from self-employment can include, but not restricted to:

• Consultancy fees for providing training
• Events and party organization fee
• Miscellaneous services, such as fitness training, saloon, taxi driving, or gardening
• Sale of craft items

The campaign is not for individuals:

• Who have multiple employment and are taxed under pay-as-you-earn (PAYE) by the respective employers
• Whose primary source of income is through pension, and also self-employed

Penalties for Failing to Notify Liability to Pay Tax

If an individual has a new source of income on which tax is liable, he / she should notify HMRC on or before 5 October, following the end of the tax year in which income was earned. For example, Jill inherited a house and rents it out in June 2015. Hence, Jill must inform HMRC about the rental income on or before 5 October 2016 at the latest (tax year – 5 April 2016). “Failure to notify” penalty can apply if HMRC is not notified in time. Penalties are based on the tax due and unpaid by ‘due date’ – usually 31 January following the end of the tax year. The amount for the penalties depends on taxpayer behavior.

How dns accountants Can Help

dns accountants is a trusted brand and has years of knowledge in the accounting and taxation domain. The firm has been helping individuals with undeclared income computation and other taxation related queries. The team at DNS comprises of learned taxation professionals and ACA’s or Chartered Accountants (CA). The firm focuses a lot of customer service & believes in delivering unmatched client service. dns accountants offers:

• Services at a nominal rate
• Best-in-class accounting and tax planning services
• HMRC inheritance tax planning and taxation advice

Even though HMRC indicates that the process is straightforward, dns accountants disagree, as it is fairly complex. There are detailed notes that need to be read, involves computation, and completion of a disclosure form which is a complex process. Individuals need to understand that if they have a claimed tax credits for any tax years for which they are submitting a late return under this campaign, their previous tax credits awards could be affected if the taxable income figure is higher than the amount declared at the time of tax credits purpose. An individual may also have to pay a tax credits penalty. We advice individuals to consider using our services, predominantly, if individuals have been receiving undeclared income for a number of years.

dns accountants provide accounting and taxation services to owner-managed-businesses and self employed individuals – freelancers / contractors. dns accountants expert team of chartered accountants (CAs) and ACAs help clients in services ranging from accounting to payroll management to tax preparation and filing.

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.