Have you received a letter from HMRC about Undeclared Income?

As part of its ongoing efforts to address the unprecedented tax related issues brought about by the digital age, HMRC is increasing the pressure on those earning money from online activity to account for any tax due on their income.

HMRC is contacting the individuals involved, asking them to confirm that they have properly reported their income. These so-called ‘nudge letters’ are not based on any statutory powers held by HMRC but are simply a cost-effective way to put a large number of people on notice that they must pay the correct tax. So, there is no legal requirement to comply with the demand to regularise your tax position. However, if you fail to do so, HMRC may launch an investigation into your affairs, the outcome of which may be severely prejudiced by your failure to engage voluntarily.

If you have received a letter from HMRC about undisclosed income, we are here to help. We regularly work with clients on matters involving HMRC. We will assess the contents of the letter and advise on the action required. We will review your tax position, formulate a suitable response to HMRC and liaise with them on your behalf where necessary.

If you are worried about an HMRC investigation, please contact us at Altion Law for a confidential discussion with one of our solicitors. Either make a Free Request For Call Back or call us directly on 01908 414990.

What type of individuals is HMRC targeting?

The digital era has transformed the way we make money. It has opened up hitherto unimagined income streams and provided users with access to consumers around the world. Ordinary people earn significant sums under the guise of ‘influencer’ by promoting goods and services to their social media followers. Craftspeople and artisans enjoy unparalleled visibility thanks to online marketplaces such as eBay and Etsy allowing them to engage directly with a global consumer base.

Whilst this is great news for those reaping the rewards, it is causing considerable problems for HMRC. It is thought that thousands of pounds in tax are being lost through individuals not accounting for the revenue earned from online activities. Sometimes, the under-accounting is deliberate but, often, it results from an innocent misunderstanding of the tax position.

What is the Tax position regarding income made online?

All UK residents who make money online are required to pay tax on that income, regardless of where in the world the sale was made. Most online sellers and influencers will be classed as self-employed for tax purposes and are obliged to pay income tax on their earnings, unless an exclusion applies. Further, some benefits in kind – ‘gifts’ to influencers, for example – might be taxable if they come with a promotion obligation. If you are unsure of your tax position, it is important to take advice and remedy any issues before they become problematic.

What is the crux of HMRC’s nudge letter regarding undisclosed income?

In essence, HMRC is encouraging those who make money online to voluntarily regularise their tax affairs if necessary. The letter usually states in its opening paragraph:

“We have information that shows you’ve earned money (income) from creating content on digital platforms” or

“We have information that shows you’ve earned money (income) from creating content on an online marketplace”.

The letter encloses a Certificate of Tax Position which recipients are invited to complete and return within 30 days, either declaring that they have paid the correct amount of tax or disclosing any potential further liability.

The letters are based on information received by HMRC from third parties. The data is cross checked against HMRC’s own records, including financial accounts, self-assessments, customs declarations and VAT returns. HMRC has been actively targeting individuals operating in this area since the start of this year, but steps allowing them greater access to the necessary data were put in place as far back as 2018.

You must ensure that any information supplied to HMRC is accurate. Speak to us if you are unsure. We will thoroughly review your circumstances and advise on the appropriate material to disclose.

What happens if you ignore a nudge letter?

Receiving a nudge letter does not necessarily mean there is a problem with your tax. They are informal, and merely intended to prompt recipients to check the tax position of their online earnings. If you are certain that you have accounted correctly for tax, you simply need to notify HMRC as such.

If you were unaware that you were liable to pay tax on the income made online, or are concerned that you have underpaid, you must not ignore the issue. We will work with you to regularise the position, negotiating payment plans with HMRC where necessary. If you face the issue head on, you are far less likely to face penalties if HMRC investigates your affairs further.

If you are yet to receive a letter, do not take this as an indication that HMRC is satisfied with your tax affairs. It’s officers have vast amounts of data to sift through, and it will likely take some time for them to contact everybody concerned. It is, therefore, sensible to look into your tax affairs in respect of online activity regardless of whether you have received a letter. Taking a proactive approach will ensure the matter is addressed before it escalates.

How we can help

At Altion Law, we are experts in dealing with HMRC related matters. Our dedicated HMRC team have vast experience in assisting clients in resolving any issue relating to HMRC, making us ideally placed to advise on the content and implications of any correspondence you have received, and your tax position regarding income made online. We are solution driven and client focussed, and we are proud to have received feedback praising our ‘excellent service’ and ‘sound honest advice.’