HMRC investigations into undeclared income are becoming more common. Recently, we’ve seen more enquiries involving people who haven’t declared self-employment income or rental profits.
This includes delivery drivers, people working in takeaways and landlords who may have gone years without reporting their rental income.
If you have undeclared income, it’s worth dealing with it sooner rather than later. Leaving it unresolved can lead to additional tax, interest and penalties.
Here’s what you need to know if you find yourself in this situation.
1. Undeclared self-employment income
One area where we’re seeing more HMRC investigations is undeclared self-employment income.
This often involves people earning extra money through delivery work, takeaway jobs or other work where they’re paid in cash.
It’s easy to assume that small amounts of extra income won’t attract HMRC’s attention, particularly if you’re already employed elsewhere. However, self-employment income may still need to be declared, even if you’re paid in cash.
If you haven’t reported this income, you could end up owing tax, interest and penalties.
2. Undeclared rental income
We’re also seeing more HMRC enquiries involving rental profits.
Some landlords have been renting out properties for years without declaring the income. In some cases, they may not realise they have a tax liability. Others simply put off dealing with it.
We’ve recently worked with a client who hadn’t declared rental profits for more than 15 years. The resulting tax bill was significant enough to force them to postpone their retirement.
It’s a good example of how an issue that’s left unresolved for years can have a real impact on your finances.
If you have rental income that you haven’t declared, it’s worth reviewing your tax position before the problem grows.
3. What happens if HMRC discovers undeclared income?
If HMRC finds out that you’ve failed to declare income, you may be asked to provide information and explain your tax position.
You’ll also need to work out how much tax you owe. Depending on your circumstances, you may have to pay interest on the unpaid tax, as well as penalties.
The amount of penalties will depend on factors such as why the income wasn’t declared and whether you came forward voluntarily or HMRC contacted you first.
Dealing with an HMRC investigation can be stressful, especially if you don’t know what to expect or how to respond.
Having an accountant who has experience with these cases can help you understand what’s required and deal with HMRC.
4. What should you do if you have undeclared income?
If you know you’ve failed to declare income, you don’t have to wait for HMRC to contact you.
You can make a voluntary disclosure to HMRC to put things right. This involves reporting the income you haven’t declared and calculating the tax you owe.
The process generally involves:
- Reviewing your records: Identifying the income that hasn’t been declared and the relevant tax years.
- Calculating the tax owed: Working out the outstanding tax, interest and any applicable penalties.
- Preparing your disclosure: Gathering the necessary information and submitting it to HMRC.
- Dealing with HMRC: Responding to questions and discussing the penalties and interest where appropriate.
Coming forward voluntarily can make a difference to the penalties you pay. In many cases, an unprompted disclosure can result in lower penalties than if HMRC discovers the issue first.
An accountant experienced in voluntary disclosures can help you prepare the figures, complete the paperwork and deal with HMRC on your behalf.
5. Already under investigation? Get help early.
If HMRC has already contacted you about undeclared income, don’t ignore the enquiry.
It’s understandable to feel anxious about receiving a letter from HMRC, particularly if the issue goes back several years. But getting the right support early can make the process easier to manage.
An experienced accountant can help you understand what HMRC is asking for, review your records, calculate your tax liability and negotiate with HMRC where appropriate.
The aim is to get your tax affairs up to date and resolve the enquiry as efficiently as possible.
Don’t leave it until later
If you’ve been putting off declaring income, now is a good time to deal with it.
Whether it’s cash-in-hand work, self-employment income or rental profits, the longer you leave undeclared income, the more expensive it can become.
We’ve seen first-hand how unresolved tax issues can affect people’s finances, even their retirement plans.
You don’t have to deal with it alone.
Need help with undeclared income or an HMRC investigation?
At Adaptive Accountancy, we have experience helping clients prepare voluntary disclosures and deal with HMRC investigations.
If you’re unsure where you stand or need help resolving an existing enquiry, get in touch with us. We’ll help you understand your options and work out the next steps.
