HMRC looks very unfavourably on taxpayers who seek to hide their income with a view to avoiding paying all the tax they owe. It proactively searches for income sources taxpayers fail to declare. If it discovers any, it may impose penalties. Here, our expert HMRC and border force solicitors and barristers explain what income sources are taxable, how HMRC might discover income a taxpayer hasn’t declared, and discuss the HMRC penalties for undeclared income.
For a confidential free discussion, call us today on 01908 414990, alternatively email us at Hello@altion-law.co.uk or complete our Free Enquiry Form and we will call you back.
What Income is Taxable
The majority of taxpayers understand that the income they earn from their primary employment is taxable. However, some fail to appreciate that most other income streams are also taxable. They include the money you earn from casual jobs, such as gardening or babysitting, selling goods online, and content creation.
Examples of the few income streams that aren’t taxable include premium bonds winnings, ISA income, and the first £1,000 you make if you are self-employed.
How does HMRC discover Undeclared Income?
HMRC proactively seeks out taxpayers who have underdeclared their income. They use a variety of sources to glean the information, with some of the most common being the following:
- Informants
If others become aware of the fact that you have underdeclared your income to avoid paying tax, they may feel aggrieved enough to report you to HMRC. To encourage informants, HMRC ensures the reporting process is quick and straightforward. An aggrieved person simply completes a form online with the information in their possession, and HMRC takes it from there. The informant can even report you anonymously if they prefer.
- The Connect system
Connect is HMRC’s most powerful weapon in the war against undeclared income. It is an incredibly powerful computer programme capable of holding vast amounts of data relating to an individual’s finances. It compares the data against a person’s tax return, and if any anomalies come to light, HMRC may decide to take a closer look.
HMRC does not disclose where the data held by Connect comes from. However, likely sources include a taxpayer’s bank or building society accounts, pensions, credit cards, and PayPal.
- Social media
Taxpayers are often alarmed to learn that HMRC trawls social media platforms to gain a deeper understanding of taxpayers’ lifestyles. The abandonment with which social media users post details of their private lives online makes social media platforms treasure troves of information for anyone minded to go looking for it. If you appear to be living a Champagne lifestyle at odds with the income declared in your tax return, HMRC may open an investigation into your affairs.
What are HMRC Penalties for Undeclared Income?
Failing to declare all your income is tax evasion. HMRC takes an extremely dim view of anyone seeking to evade tax and has a range of civil and criminal powers at its disposal to tackle the issue.
More often than not, HMRC chooses to use its civil rather than its criminal powers to address undeclared income. HMRC’s main aim is recovering the funds lost by the Treasury to tax evasion, and civil investigations tend to be quicker and cheaper than criminal ones. If HMRC’s investigations indicate that you have underdeclared your income, you will likely be ordered to pay any tax you owe along with interest. In some cases, HMRC adds a penalty to the sums payable. That penalty can be up to 200% of the outstanding tax. Accordingly, where you have significantly underreported your income, the sums you have to pay can be substantial.
While HMRC favours civil investigations and proceedings, it will deploy its criminal powers where it considers doing so necessary. If HMRC chooses to do so in your case and you are convicted of a criminal offence, you can face an unlimited fine and even imprisonment.
How can we Help?
Under declaring income to HMRC is a serious matter and one which you need to address sooner rather than later. If you approach HMRC of your own accord, you will likely be treated more leniently than if you wait for HMRC to uncover the issue through their own investigations and contact you.
If you are concerned that you may have failed to declare taxable income or received a letter from HMRC notifying you that it has evidence of your undeclared income, our specialist HMRC solicitors and barristers are on hand to advise you on how best to deal with the issue. We have extensive experience in HMRC-related matters of all types and frequently liaise with HMRC officers on our clients’ behalf. We are expert negotiators and regularly settle our clients’ issues with HMRC on extremely favourable terms.
For a confidential free discussion, call us today on 01908 414990, alternatively email us at Hello@altion-law.co.uk or complete our Free Enquiry Form and we will call you back.
