If it’s just now dawning on you that you’ve never registered with HMRC, try not to panic. There are steps you can take to resolve the situation with minimal consequences – but the sooner you act, the better.
It’s actually a fairly common mistake among people who take an income from property. After all, if you’ve spent most of your working life being taxed at work through PAYE, you might not realise right away that you need to report and pay tax on your property income.
The same goes for people building their careers in creative industries like photography or modelling. If you started doing the odd bit of paid work alongside your main job, you might not have been required to pay tax – but before you know it, your income from your side hustle might have started to attract a tax liability.
Whatever your situation, HMRC tends to be more lenient towards people who are honest about what’s happened, so it’s always better to come forward rather than wait for the tax authority to find you out.
When do you need to register with HMRC?
Generally speaking, anyone with property or self-employed trading income of more than £1,000 in a tax year needs to register with HMRC to complete a self-assessment tax return. You’re also required to register if you run a limited company.
If you’re not sure whether you need to file a tax return, you can use this test on the HMRC website.
Self-assessment returns need to be filed by 31 January after the end of the tax year they relate to – so that means if you only had untaxed income in the 2020/21 tax year (between 6 April 2020 and 5 April 2021) you should still be able to register for the next self-assessment deadline in the normal way.
If you have unreported income for any time before that, however, you’ll need to tell HMRC.
Aside from registering to pay income tax, you’ll need to make sure you register for corporation tax if you run a company, PAYE if you employ staff, and VAT if your business’s annual taxable turnover is more than £85,000.
Reporting undeclared income
You should own up to HMRC as soon as you know you have made a mistake. That’s not just because it’s the right thing to do – it’s also because it puts you in the best position to avoid expensive fines.
HMRC uses sophisticated software and information-gathering methods to look for businesses that aren’t registered for tax, and can impose high penalties on people who put off admitting their error, or who try to hide what’s happened. In the worst cases, giving HMRC false information about your tax position could even lead to prosecution.
As a first step, it’s usually best to get professional advice from an accountant. If you let us know about your situation, we can tell you how serious it is and how much tax you might owe.
We can then handle communications with HMRC on your behalf from that point, making a formal declaration of your undisclosed income and providing any further information they require.
HMRC runs voluntary disclosure campaigns for people in specific sectors to come forward about unpaid tax, such as the let property campaign. This asks landlords to tell HMRC they wish to take part, then calculate and pay the tax they owe within 90 days.
Depending on your circumstances, you might only have to repay the tax and any interest owed, or you might have penalties on top of that.
Penalties are given as a percentage of the unpaid tax, which varies depending on whether the mistake was non-deliberate, deliberate, or deliberate and concealed. They also depend on whether your disclosure was entirely voluntary or prompted by HMRC, and how long ago the tax was due.
And if you tell HMRC about your situation, help them in their investigation or give access to the records they need, your penalty could be reduced by 30-40%.
If you’re concerned about your tax affairs or don’t know what you need to do next, we at Green & Peter are here to help.