What to do if you’ve never declared your income

If you report your undeclared income to HMRC voluntarily, before HMRC suspects anything, you are unlikely to be prosecuted and you may reduce the penalties you receive. It may also help to know that HMRC will often try to reach an agreement that reflects your ability to pay.

What should you do?

It is a good idea to seek advice from an accountant or tax adviser before reporting your situation to HMRC. They can review your tax situation and may be able to tell you how much tax you have failed to pay, how seriously HMRC will view your situation and how best to approach HMRC.

There are a few ways you can disclose your income to HMRC:

  • Through an HMRC campaign
  • Direct to HMRC

Disclosing income via an HMRC Campaign

HMRC run ‘campaigns’ to encourage individuals in certain areas or business sectors to disclose undeclared, or under-declared income. They will run campaigns on things like ‘electricians’ or ‘landlords’ for example. A list of current campaigns can be found on the Gov.uk website.

If you wish to disclose your income under a campaign, you will be expected to calculate the income tax, tax, interest and penalties that are due. HMRC provides assistance on how to do this within the disclosure pack.

Why should I disclose via a campaign?

HMRC can impose penalties of up to 100% of the tax owed, which means that your tax bill could be doubled by your penalties. However, the penalties for disclosing via a campaign are usually capped at up to 20% of the tax owed. So, the advantage of disclosing via a campaign is that this will usually result in lower penalties.

HMRC campaigns are usually time-limited and once the deadline is passed, HMRC will proactively look for people within that business sector or geographical area who have not made a disclosure but should have. If your undeclared income is discovered by HMRC after the campaign has ended it could mean much higher penalties and potentially prosecution.

Disclosing income directly to HMRC

If there is not a particular campaign for your type of income or gains, then this is the way you will need to disclose your income to HMRC. You should seek professional tax advice before approaching HMRC, as they will be able to help advise you on how best to do this. Please see our page on choosing a tax advisor, or if your income is under £20,000 a year our charity helpline can support you.

After seeking professional help, you may wish to use the HMRC Voluntary Disclosure Helpline.

What happens next?

At HMRC, your case should be passed to an inspector trained to deal with tax enquiries. The inspector will write back to ask for more information and documents and may suggest a meeting to discuss the case. The inspector will usually want tax returns completed for all the years concerned.

Will I be prosecuted?

If you have undeclared income you have broken the law and from HMRC’s point of view you are guilty of tax evasion. This means that HMRC can prosecute, but they will normally only do so in cases involving fraud or false accounting. There are only a few prosecutions of this nature each year.

  • You are unlikely to be prosecuted if you voluntarily disclose your failure to HMRC before they have any suspicion of wrongdoing.
  • You are unlikely to be prosecuted if you are guilty only of failing to declare your income. HMRC concentrates on cases where there has been further wrongdoing, for example, the creation of fraudulent documents or the deposit of profits in foreign bank accounts.
  • You are less likely to be prosecuted if the tax evaded is small. Most prosecutions involve unpaid tax of over £50,000.

However, if you are prosecuted you could face a prison sentence. So if there is any suggestion from HMRC that it might take criminal proceedings, you should seek legal advice immediately.

How many years will HM Revenue and Customs go back?

The time limits are:

  • 4 years in all circumstances where the taxpayer has taken reasonable care to submit a correct return
  • 6 years in all circumstances where the taxpayer has failed to take reasonable care
  • 20 years where the taxpayer has failed to notify liability or has deliberately understated a tax liability

What will be the outcome of disclosing my undeclared income?

In almost every case HMRC will be seeking a financial settlement, which will be the end of the matter (although you may expect a closer interest in your tax affairs in future years). This is an agreement between you and HMRC that you will pay a certain amount to cover the unpaid tax, plus interest and some penalties.

The penalty could be up to 100% of the unpaid tax, and the level of this penalty depends upon the taxpayer’s behaviour. Attempts to mislead HMRC will result in higher penalties.

In practice, HM Revenue and Customs will normally provide a calculation of the tax and interest due and indicate the level of penalty that it would expect. You would then be ‘invited’ to make an offer to agree to pay the total sum. There is not usually any point in offering less than the amount indicated by HM Revenue and Customs.

Once the amount of the payment has been agreed, HM Revenue and Customs will draft a letter for you to sign, in which you offer to pay this figure, by a specified date(s), in full settlement of all matters. The inspector may also want you to sign a letter stating that you have made a complete disclosure of all your income and gains. This should be taken very seriously. If it turns out later that you have not told the whole truth, you could face prosecution.

If you cannot reach an agreement with HMRC you can take the case to the Tax Tribunals. The Tax Tribunal will make a conclusive decision as to the level of income to be taxed – see http://www.justice.gov.uk/tribunals/tax for details.

Further links that may be useful:

Why not keep quiet about my income?

What if I can’t afford to Pay?

How to choose an accountant or tax adviser?