In recent years there has been increasing pressure on HM Revenue and Customs (HMRC) to prevent tax avoidance and evasion in order to increase tax revenues.
The vast majority of tax on individuals in the UK is collected by self-assessment. Tax Returns can be filed online and tax due calculated by online systems. It is therefore possible for HMRC to be completely unaware if a taxpayer intentionally or negligently fails to disclose all of their income and pays less tax as a result.
To combat this there is a range of penalties that can be charged upon a taxpayer who fails to comply with their obligations under self-assessment. For example, failure to submit a tax return by the deadline where one is demanded, can carry a penalty of up to £1,300 in the case of severe delay.
Where a taxpayer fails to disclose taxable income to HMRC the penalty can be as much as an additional 100% of the tax due, where the non-disclosure is both deliberate and concealed. Substantial discounts apply however where a disclosure is made to HMRC which is voluntary and not prompted by an enquiry.
Two particular areas that HMRC have targeted are income from online trading (such as Amazon, Etsy and eBay) and rental properties.
The Let Property Campaign launched in August 2013 is currently ongoing with no final date. One significant benefit to a taxpayer who makes an unprompted disclosure under this campaign is that any penalties issued will be limited to between 0% and 20% of tax due.
In addition to encouraging unprompted disclosure, HMRC also utilises Land Registry records and other information to identify taxpayers who may not have disclosed rental income.
For online trading HMRC held an E-marketplaces campaign in 2012 for a short period of time raising over £9m. Since then HMRC has continued to pursue taxpayers who may even unknowingly be categorised as traders. HMRC guidance includes a number of ‘badges of trade’ which can help identify whether such sales are categorised as a hobby or a trade.
Accordingly, if you have taxable income which has not been disclosed to HMRC it is wise to make a full, unprompted, immediate disclosure to minimise penalties. In the case of both prompted and unprompted disclosure, instructing a tax agent can be very valuable. This would ensure a full and timely disclosure which would, in turn, obtain the maximum discount in penalties.
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