PLEASE NOTE: The charity TaxAid advises only those people on low incomes whose problems cannot be resolved with HMRC.

It is your responsibility to tell HMRC if you owe income tax

Income Tax

Some income is taxed before you get it (‘at source’) – such as employment income. Other income is not taxed before you get it – you need to tell HMRC when you start to get income of this sort, and may need to tell them each year by completing a tax return.

If you have untaxed income because you are self-employed, or join a partnership, you should register with HMRC as soon as you start to trade.  If you delay registering, you may have to pay a fine.  You can register  on-line at https://online.hmrc.gov.uk/registration/newbusiness/introduction or phone the self-employed helpline on 0300 200 3504. See the ‘starting a new business’ section of this website for more information – http://taxaid.org.uk/situations/starting-a-new-business

If you are not self-employed but have untaxed income and need to complete a tax return – for example you have rental income, or untaxed savings income above the Savings Allowance – you should tell HMRC. You can do this by phone HMRC on 0300 200 3300 or register with HMRC on-line.   You must tell HMRC within 6 months of the end of the tax year: that is by 5 October after the end of the tax year.

Example: Alexandra is left a house by her uncle. In September 2015 she lets it to tenants at a rent of £450 per month. Alexandra is a basic rate taxpayer with a full-time job. The additional rental income means she will have tax to pay. She must tell HMRC by 5 October 2016 at the latest that she now has rental income.

[Timeline: First rental income is in September 2015; the end of tax year in which September 2015 falls is 5 April 2016; six months from 5 April 2016 is 5 October 2016]

If the untaxed income is less than £2,500 and you work as an employee or have a pension taxed under PAYE, you can ask HMRC to collect the tax due under PAYE by changing your tax code. To do this you should contact the HMRC Taxes helpline on 0300 200 3300. (For rental income, gross rent received must also be under £10,000 pa.)

Example: Looking at Alexandra’s situation, if  her rental profit is under £2,500 a year and she has a job as an employee. She could ask HMRC to change her tax code to collect the tax due on the rent.

HMRC will consider collecting tax through your PAYE code if you owe less than £3,000, or you could arrange to pay the amount direct to HMRC.

Example:  If Alexandra’s rental profit is over £2,500 a year, but the tax due is under £3,000 then she would normally need to complete a self assessment  tax return, but the tax due will normally be collected through her PAYE tax code.

Your responsibilities are:

a) To complete a tax return if one has been sent to you by HMRC. You must do this even if all your income has been taxed; but you should consider asking HMRC to withdraw the tax return, to avoid unnecessary penalties, if you consider one is not due.  (If you have previously submitted returns on-line, HMRC may send you a notice to file on-line, rather than sending you a paper tax return.)

b) If you have tax to pay (that is, you have income or profits on which tax – or more tax – is due) and you do not normally get sent a tax return or notice to file on-line, then you need to tell HMRC of new sources of income. This is so that HMRC can issue you with a tax return in good time for you to meet the filing deadlines – if they decide that a return is needed.