QUESTION: I inherited a house from my father a number of years ago and I lived in it for two years. Since then it has been rented out to someone claiming benefits. I assume the government know about this money and I don’t need to do anything?
ANSWER: It is your responsibility to report all of your income to HMRC. If your normal income is from employment, then the receipt of this rental income would need to be reported to HMRC.
Reporting undeclared income to HMRC is a crucial step to ensure compliance with tax regulations and avoid potential legal consequences. The process of reporting undeclared income involves being transparent about any income that has not been properly disclosed to the tax authorities. HMRC has various mechanisms in place to help individuals report undeclared income and rectify their tax affairs.
One of the primary ways to report undeclared income to HMRC is through the Worldwide Disclosure Facility (WDF). This mechanism allows individuals to disclose any previously undeclared income, assets, or gains to HMRC. By using the WDF, taxpayers can avoid more severe penalties that might be imposed if undeclared income is discovered through other means. This facility can be utilised by individuals with overseas income or assets, as well as those who have failed to pay tax on any form of income.
Another avenue for reporting undeclared income is the Digital Disclosure Service (DDS). This online platform allows individuals to notify HMRC about any unpaid tax liabilities. DDS is particularly useful for individuals who wish to disclose tax irregularities related to sources such as rental income, investments, or undisclosed offshore accounts.
HMRC also periodically launches campaigns that encourage individuals to come forward and report undeclared income. These campaigns are designed to target specific groups of taxpayers who may have undeclared income. For example, the Let Property Campaign focuses on individuals who receive rental income but have not declared it to HMRC.
To report undeclared income through these campaigns, taxpayers typically need to follow a series of steps:
- Calculate Undeclared Income: Determine the amount of undeclared income, ensuring accurate calculations to provide the correct figures to HMRC.
- Register for the Campaign: Visit the HMRC website and register for the relevant campaign. This often involves providing basic personal information and indicating the source of undeclared income.
- Disclose the Income: Submit a disclosure detailing the undisclosed income, assets, or gains. This should include accurate information about the amounts, sources, and time periods involved.
- Calculate Tax Owed: Calculate the tax owed on the undeclared income. HMRC will provide guidance on how to calculate the tax liability accurately.
- Pay Taxes and Penalties: Pay the tax owed, along with any associated penalties. The severity of penalties may vary depending on factors such as the amount of undeclared income and the taxpayer’s cooperation.
- Maintain Compliance: After making the necessary disclosures and payments, individuals should ensure they remain compliant with tax regulations going forward. This includes proper reporting of all income sources in subsequent tax returns.
- Seek Professional Advice: For complex situations or if unsure about the best course of action, individuals may consider seeking advice from tax professionals or accountants.
Reporting undeclared income to HMRC is a responsible and necessary step to rectify tax irregularities and maintain compliance with the law. Utilising mechanisms like the Worldwide Disclosure Facility, the Digital Disclosure Service, and various campaigns offered by HMRC can help individuals come forward, disclose undeclared income, and resolve their tax matters in a structured and less punitive manner.
It is crucial to accurately calculate the undeclared income, follow the appropriate reporting procedures, and pay the taxes and penalties owed to ensure a smooth resolution and ongoing compliance with tax regulations.
:: Feargal McCormack (f.mccormack@fpmaab.com) is partner at FPM Accountants (www.fpmaab.com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.
