Have you declared your second income?

New campaign launched to target employed individuals who have not declared their second income for tax purposes writes Edward Parker FCCA.

It applies if you are a UK resident, in employment and you have another source of income which has not been declared to the HMRC. Here's everything you need to know to stay compliant. 

What counts as a second income?

A second income (over and above your employment income) can take many forms including:

• Selling items on eBay/other websites
• Consultancy fees which could be for things like delivering training
• Providing services such as renting parking space or a room

How the deal works

HMRC have a powerful but simple message. Either you tell them about your additional income voluntarily and you will only have to pay a very small penalty or, if they find out about it first then the deal is off and your penalty could be severe.

Can you ignore this?

There have been so many HRMC campaigns and related disclosure opportunities that you might be tempted to not take up this one knowing that others will be introduced later. However, HMRC has become very good at finding out about undisclosed income through data mining and other sophisticated techniques. It means as with many temptations, you should resist because the risks are huge as demonstrated by the No Safe Havens document.

What to do next

You need to tell HMRC that you will be making a disclosure and then send in all the relevant details within 4 months. Interestingly, they ask you to judge how much penalty you think you should pay – and they set out some guidelines. They even suggest that if you submitted a tax return showing insufficient tax because you had been careless, there won't be a penalty charge, although you will have to pay tax for up to 6 years earlier.

If you have deliberately misled HMRC, either by sending in a tax return knowing the tax was inadequate or failing to tell them about it at all, then the indication is a penalty of 20% of the tax will be appropriate – and this can go back up to 20 years.

Is there a sting in the tail?

When making the disclosure, HMRC will naturally want to know why you haven’t told them previously about the undisclosed income. Their reaction and the penalties involved will depend upon whether you took reasonable care, whether you were careless or, whether the failure was deliberate.

As per page 10 of the published No Safe Havens notes, if you were eligible for any earlier disclosure opportunity and did not take it, then HMRC may find it hard to accept that what you are now disclosing was not a deliberate failure in the past. Your problem is the previous disclosure opportunities were extremely comprehensive in nature, so it is difficult to think of anything which would not have been included previously to prompt you.

The content of this post is up to date and relevant as at 13/05/2014.

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