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

Will I be caught if I don’t disclose my income?

Undeclared income guide

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HMRC is aware that many people operate in the ‘shadow’ or ‘informal’ economy. HMRC’s recent approach has included specific ‘campaigns’ to encourage those in particular industry sectors to inform it about undeclared business activities and ‘moonlighting’.

It is clear that individuals who do not avail themselves of the chance to declare all their income during one of these campaigns can face tougher action from HMRC, including higher penalties and even prosecution.

Although the number of prosecutions for tax evasion is relatively small, HMRC has said that it expects this to rise five fold.

HMRC may also use the Proceeds of Crime Act against individuals who have not declared all their income. This potentially means that the financial cost of tax evasion can be very high.

HMRC’s sophisticated Connect software is also increasing likely to discover mismatches between declared income and lifestyle.

In addition to activity initiated by HMRC, there is also the HMRC Tax Evasion hotline, which allows members of the public, including casual acquaintances and relatives, to anonymously report anyone suspected of tax evasion, such as working in the ‘informal’ economy.

Where HMRC takes the initiative and discovers tax evasion, it can impose a penalty of up to 100 per cent of the tax owed, although in most cases the penalty is lower. Interest is payable on the unpaid tax which can significantly increase the bill over time.

The consequences of voluntary disclosure are normally much less harsh than if you wait for HMRC to find out about you. If you want free, confidential advice and information on declaring your income, phone the TaxAid helpline.