QUESTION: Outside of my regular job, I have been working weekends as a gardener and maintenance man to earn additional income.
I have not declared any of this income to HMRC or paid any tax on it. Can you tell what I need to do?
ANSWER: If you have undeclared income, whether from self-employment, investments, rental properties, or other sources, it’s crucial to understand your legal obligations to HMRC.
Failing to declare income can lead to significant financial penalties, interest charges, and even legal action.
Below I will outline the steps you need to take to notify HMRC, the time limits involved, and how to avoid problems in the future.
Notifying HMRC of undeclared income
If you realise that you have not declared all of your income, it is essential to act quickly.
The first step is to inform HMRC. You can do this through the Digital Disclosure Service (DDS), which allows you to make a voluntary disclosure of any unpaid tax.
The DDS is accessible online and covers a wide range of tax issues, including income tax, capital gains tax, and National Insurance contributions.
To notify HMRC, you must first complete a notification form, which provides basic details about the nature of the undeclared income.
After submitting this form, HMRC will send you an acknowledgment and grant you 90 days to calculate and pay the owed tax, including any interest and penalties.
Time limits for declaring undeclared income
HMRC imposes strict time limits on how far back they can investigate undeclared income.
Generally, the time limit for HMRC to make inquiries is four years from the end of the tax year in which the income arose.
However, this limit can extend to six years if the mistake was due to carelessness, and up to 20 years if the undeclared income was the result of deliberate evasion.
It’s important to note that these time limits apply to the period in which HMRC can take action. However, once you notify them of undeclared income, you should resolve the issue as soon as possible to minimise additional penalties.
Interest and penalties
When you have undeclared income, you will be liable not only for the unpaid tax but also for interest on the overdue amount. HMRC charges interest from the date the tax was originally due until the date it is paid. The current rate of interest is set by HMRC, is available from their website and may vary depending on the tax.
In addition to interest, penalties can also be applied depending on the nature of the non-disclosure. Penalties are calculated as a percentage of the unpaid tax and can range from 0% to 100%, depending on whether the failure to declare was due to carelessness, a deliberate error, or deliberate concealment. Voluntarily disclosing the undeclared income can significantly reduce the penalty, often by half or more, particularly if you act before HMRC initiates an investigation.
Avoiding problems in the future
To avoid future issues with undeclared income, it’s crucial to register with HMRC for self-assessment and keep accurate and up-to-date records of all your income and expenditure. Regularly reviewing your financial situation and seeking professional advice can help ensure that all income is properly declared. If you have complex financial arrangements, such as multiple income streams or investments, consider seeking the advice of a tax advisor who can help ensure compliance with HMRC requirements. Furthermore, staying informed about changes in tax law and regulations is essential, as this can impact what income needs to be declared and how.
Shane Martin is director at AAB Group Accountants. 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.
