Most income in the UK is taxed automatically. If you’re employed, tax is taken off through Pay As You Earn (PAYE), and your employer or pension provider usually sorts this out for you. And HMRC can raise simple assessments to collect tax on your state pension or bank interest.
If your income is from self-employment, casual work or renting a property, you need to tell HMRC about it so they can work out how much tax you need to pay.
This is usually done through sending in a Self Assessment tax return. You can find out more about this, including deadlines, how to register and what to do if something goes wrong, in our guide to Self Assessment.
What happens if you don’t declare your income?
If you have made a mistake or misunderstood something, it’s best to do something about it as soon as you can. It’s very unlikely that you will be prosecuted – this is very rare and usually linked to fraud or where someone has kept back information on purpose.
The most important thing is this the sooner you act, the better it tends to be. And there are people who can help you if you need support.
What counts as undeclared income?
Undeclared income is money you have earned or received that you haven’t already paid tax on. It could be:
- Cash-in-hand jobs
If you get less than £1,000 from these sources of income, you probably won’t need to declare it. But once you go over £1,000, you usually do.
If you’re not sure if your income needs to be declared, it’s best to check. That way you know what you need to do and can get things sorted.
What if I just keep quiet?
HMRC has far more information than most people realise.
They receive data from banks, employers, rental agents and online platforms. They also use digital systems to match information and spot gaps. From time to time, they run targeted campaigns aimed at particular trades or industries.
If HMRC contacts you first, penalties are usually higher.
If you approach them voluntarily, penalties are often reduced.
Generally, it’s best to get in contact with HMRC as soon as you can.
What should you do now?
If you’ve never declared your income, take a breath. Then take action. And remember – there are people who can help you.
Get advice first
Before you contact HMRC, it’s a good idea to speak to a tax adviser or accountant. They can help you:
- Work out how much tax you may owe
- Understand how HMRC is likely to view your situation
- Decide the best way to make a disclosure
We have information on how to find a tax adviser or accountant. If you’re on a low income or have personal circumstances that make finding help difficult, get in touch with us through our helpline.
Disclose the income.
There are two main ways to do this.
Through an HMRC campaign
HMRC sometimes runs time-limited campaigns aimed at specific sectors, such as landlords or electricians.
If you qualify, you calculate the tax, interest and penalties due and submit this as part of the campaign process.
Penalties under campaigns are often lower than they would be otherwise. But the deadlines are strict. If you miss them and HMRC later finds you, the outcome can be more serious.
Directly to HMRC
If there’s no campaign relevant to you, you can tell HMRC about your income directly (also called a voluntary disclosure).
Once you do, HMRC will usually:
- Assign an inspector to look into your case
- Ask for information and documents
- Ask you to complete tax returns for the relevant years
It can feel formal, but it’s to make sure that everything is correct. At the end, you will get a tax bill which you will then need to pay. We have information about how to pay tax debts.
Will you be prosecuted?
In most voluntary disclosures, no. If you go to HMRC to disclose your income voluntarily, it is extremely unlikely that you will be prosecuted.
HMRC tends to only prosecute people if the case involves:
- Fraud
- False documents
- Large sums (often over £50,000)
- Deliberate concealment, such as hidden offshore accounts
If you come forward before HMRC contacts you, prosecution is unlikely.
But if HMRC suggests criminal proceedings at any stage, get legal advice immediately.
How far back can HMRC go?
It depends on behaviour:
- 4 years if you made a mistake on a return but took reasonable care
- 6 years if you made a mistake on a return but were careless
- 20 years if you failed to declare income on purpose or you didn’t notify HMRC that you chargeable
The more open and cooperative you are, the easier this process tends to be.
What will you have to pay?
In most cases, HMRC will ask you to pay:
- The unpaid tax
- Interest
- A penalty
Penalties can be up to 100% of the unpaid tax (up to 200% in offshore cases). But where someone comes forward voluntarily and cooperates fully, they’re often much lower.
You will be expected to calculate the amount to pay, giving reasons for the level of penalty that you’ve added, and offer that to HMRC as a settlement. Once agreed and paid, HMRC will confirm that the settlement is complete.
That part is important. If income later comes to light that wasn’t disclosed, the situation can become far more serious.
If you can’t afford to pay everything at once, HMRC may agree to a payment plan based on what you can realistically afford.
Find out more about getting help with tax debt.
Where to find help.
Being in a situation like this can feel overwhelming – but there are places to find help.
We have information on how to find a tax adviser or accountant.
HMRC have an Extra Support Team if you have difficult personal circumstances or health issues, including difficulties using the phone.
If you’re on a low income or have personal circumstances that make finding help difficult, get in touch with us through our helpline.