Date posted: 24th Jul 2023
What should you do if you have undeclared income?
So you’ve had a letter from HM Revenue & Customs advising that they are aware that you may have income to declare to them.
Assuming it is correct, the first stage is not to panic.
Nor it is advisable to consider who has told HMRC and start accusing your family and friends – this is unlikely as HMRC have many ways and means of finding this information.
The first step is to speak to a qualified tax adviser who will be able to guide you through the next steps.
Firstly, checking with you that it is indeed correct and the number of years that HMRC can ask about.
They should then ask about the circumstances in relation to why the income has not been disclosed as this will be critical in respect of determining what penalties could be payable to HMRC.
Finally, they should be able to advise you on how to move forward with HMRC with their help.
How do HMRC know?
The Government are slowly but surely linking all of their systems so that information is shared between departments.
HM Land Registry and HMRC will share information about taxpayers that own more than one property – the inference being that HMRC may believe that you own a second home and are receiving rental income. HM Land Registry are also believed to notify HMRC when a property has been sold and thus the taxpayer may be on the radar to declare the sale from a capital gains tax perspective.
HMRC may have information from Companies House that shows you are a shareholder and may have undeclared dividend income to report.
If you are claiming that you are non-resident, then Border Control may also share information with HMRC regarding the dates that you left and returned to the UK.
The countries of the world are also sharing much more information between them, meaning that if you are UK resident, HMRC may have details of the overseas income you received but perhaps did not declare to HMRC.
HMRC may have enquired into another taxpayer and your name or business may have flagged to HMRC as a “person of interest.”
Even internal HMRC departments may know from submissions of accounts that show the company is paying dividends but this doesn’t tie into shareholders’ tax returns.
Similarly, the submission of forms P11D by an employer may create a discrepancy if the taxpayer has overlooked the declaration of the benefits on their tax return.
Apparently HMRC even check social media for pictures of holidays, new cars, new houses etc that may not tally with your declared income…..
Ultimately, there are many ways and means that HMRC can access details of undeclared income.
We know….
HMRC are actively asking about undeclared property income, missing P11Ds and whether taxpayers may have dividend income to declare from companies that they own.
What if I haven’t received a letter but have undeclared income to report?
If you have undeclared income to report but have not had a “prompt” from HMRC, then you may be in a better position that someone that has received a letter from HMRC.
The tax due would still be the same if you had identical income, but the penalty position may be better for you – this is because HMRC have not had to prompt you to come forward and declare the income and there are different levels of penalties applied depending upon whether HMRC have prompted you to declare the income or whether you have done this “unprompted”.
In other words, if you come forward without HMRC asking and are helpful in putting your affairs in order, you should end up paying less penalties.
How can we help?
We have had numerous prospective clients ask us for help – ranging from undeclared property income to undeclared overseas investment income.
In some cases we have managed to reduce or extinguish penalties proposed by HMRC by showing that the taxpayer had a reasonable excuse for the non-declaration of the income. As ever, each case needs to be considered on it’s own merits.
We have even helped clients that have received such letters but had no idea what information HMRC were referring to. In one case, the taxpayer had a second property but it was simply a holiday home that they used privately, that was not let to the public, so there was no income to declare. In another situation, HMRC had mixed up a taxpayer with another taxpayer due to them having a similar name.
Ultimately we work with you to bring matters to a conclusion and are on your side all of the way. We want you to avoid having sleepless nights and give you that reassurance that matters will be handled professionally, timely but ultimately to the best outcome for you.
If you have any issues regarding undeclared income, speak to a member of our team here.
