Some people owe tax, but do not receive demands because the HM Revenue and Customs does not know that they have been receiving taxable income.

This situation is serious, because you may be charged penalties for failing to report your income and, in the most serious cases, there is the risk of prosecution.

You will generally benefit from disclosing the position to HM Revenue and Customs without delay because:

• if you report the situation voluntarily, before HMRC suspects anything, you are unlikely to be prosecuted
• if you disclose your income and cooperate fully with the investigation or enquiry that will follow, this should help to reduce any penalties payable.

It may also help to know that HMRC will often try to reach an agreement with you, regarding your outstanding tax, that reflects your ability to pay.

What should you do?

While we would advise you to report your failure to notify to HM Revenue and Customs as soon as possible, it is usually a good idea to seek advice from an accountant or tax adviser first. After reviewing the situation, they may be able tell you how much tax you have failed to pay, how seriously HMRC will view your situation, and how best to approach HMRC.

For more information, see our Undeclared Income guide.

If you cannot afford to pay for this advice, TaxAid may be able to help you – contact TaxAid’s helpline 0345 120 3779. Otherwise, find an accountant or tax adviser whom you trust, and ask them to act for you.

Once you have received advice, the non-disclosure, or under-disclosure, should be reported to HMRC. This may be done by you or the adviser. It should normally be in writing, as it gives the chance to present your case in full, explaining any personal reasons why you failed to declare the income, and to include accounts or summaries which indicate the level of income involved.

This should help to ensure that HMRC responds to you appropriately.

The confidential helpline

HM Revenue and Customs has established a confidential helpline (0845 608 6000) which you may contact to discuss your situation, without revealing your identity.

This may be a good way of initiating contact with HMRC.

Once you have clarification from the helpline as to how HMRC will view your situation, you may decide to give them your identity and they will pass your case to a tax office to continue negotiations with you.

Unfortunately the confidential helpline may not be willing to help if HMRC already holds a record of you somewhere on its computer system (for example because you had a job taxed under PAYE at some point in the past). In such cases they will simply refer you to another tax office.