We have been contacted by a number of people recently who have fallen behind with their tax affairs. In this blog we take a look at the procedures for getting your tax affairs up to date with HMRC.
Self-Assessment Tax Returns
Where an individual has an income or capital gains tax liability and they are not already registered for Self Assessment, they are obliged to notify HMRC by 5 October following the tax year in which the liability arises. HMRC will then issue a tax return which will need to be filed by the following 31 January.
Where a liability is notified late, HMRC have the power to issue a penalty (although in practice they rarely do). Provided the notification is made within the statutory period during which a tax return can be filed (a year from 31 January following the tax year) a tax return can be filed online in the usual way.
Where an individual has notified HMRC of an income or capital gains tax liability but it is understated because of an inaccuracy in the figures reported to HMRC, the individual can file an amended return within a year of 31 January following the tax year concerned. However late payment penalties of 5% for tax paid more than a month late apply, or 10% where tax is more than six months late.
Once the deadline for filing a tax return has passed, a separate procedure must be followed to notify a liability or correct an inaccuracy, called a ‘disclosure’.
Making a Disclosure
The disclosure process involves an initial notification to HMRC of the intention to disclose following HMRC’s acknowledgement of which, the taxpayer has 90 days in which to provide HMRC with full details of income/gains omitted or the correction required, calculations of the additional tax and interest due and a self-assessment of the penalty due.
A disclosure gives HMRC the right to charge a penalty. Penalties are calculated as a percentage of the additional tax due. The level of penalty depends on various factors including whether the disclosure was ‘prompted’, whether was ‘careless’ or whether it was ‘deliberate’. HMRC has set out penalty bands for each category. Where the penalty falls within the band depends on other factors including how long the tax has been outstanding, how promptly the taxpayer has acted on becoming aware of the issue and on the qualify of the information provided and the level of cooperation with HMRC.
There are higher penalties where the failure relates to an offshore matter, depending on the factors above as well as the offshore territory concerned up to a maximum of 200%.
HMRC has undertaken a number of ‘campaigns’ informed by data provided by third parties, targeting various categories of taxpayer, such as landlords, designed to ‘prompt’ them to make a disclosure of any outstanding matters. We recently wrote about AirBnB providing information to HMRC.
If a disclosure is not made and HMRC subsequently ‘discovers’ that additional tax is due, the penalties charged are significantly higher.
How We Can Help
We have helped many clients get their tax affairs up to date, preparing and submitting both outstanding/overdue tax returns and assisting with the disclosure process for clients who’s tax affairs need attention going back a number of years.
Contact Us
Please contact us to find out how the above applies in your circumstances and how you can reduce your tax liabilities and maximise your tax efficiency.
Please note that the above is for general information only and does not constitute financial or tax advice. You should not rely on this information to make or refrain from making any decisions. You should always obtain independent professional advice in respect of your own situation.
