Declaring unpaid tax - best way to avoid penalties?

spursfan323

Hi, hope someone can help advise.

A friend has been receiving property income for about 10 years, but never declared it as it was always lower than her Personal Allowance. (She had no other income)

About 4 years ago she got a job. But she still never declared the property income as she misunderstood how the PA works and thought it still covered the property income (not realising that the PA is deducted from total income including employment income, and thus was completely used up).

She has now realised her mistake and wants to declare the income and pay the tax owed - however she would also like to avoid penalties/fines etc as much as possible. What is the best way of going about this?

PS> For starters, I've downloaded the SA1 form for her 'Registering for Self Assessment and getting a tax return' wherein a box needs to be completed with the date the income started. Should she put in the date 4 yrs ago or 10 yrs ago?

HappyMJ

Last 4 years should be fine as no liability arose before then anyway. Speak to a tax accountant. The accountants fees can be offset against profit to reduce tax.

spursfan323

Thanks. One initial query:

Her job began in December 2008 thus her first tax year is 08/09.

Does she need to declare income starting from

Job start date: Dec 08
or
start of tax year: Apr 08 ?

Pennywise

spursfan323 wrote: »

Thanks. One initial query:

Her job began in December 2008 thus her first tax year is 08/09.

Does she need to declare income starting from

Job start date: Dec 08
or
start of tax year: Apr 08 ?

She'll have to complete a tax return for the tax year 6/4/08 to 5/4/09 and on that she has to declare all income for the year.

spursfan323

Thanks.

My friend intends on submitting returns for the last 4 years but is anxious not to trigger off any late notification HMRC penalties etc. She hopes to slip through the system.

When filling in the SA1 form, it asks for the date of start of income.

Would you recommend putting in 06/04/2012 (to avoid triggering anything) and after registration sending in 4 returns + payment for YE 10/11/12/13

or

putting in the real date of income start 06/04/09 on SA1

?

jimmo

spursfan323 wrote: »

My friend intends on submitting returns for the last 4 years

I wouldn’t do that.

If somebody suddenly submits 4 years worth of Returns to HMRC they will be processed and the computer system will automatically fire off any fixed penalties and/or include the case in a worklist which a human being will have to review and, certainly in my days at HMRC, it was easier to take up a listed case for enquiry than justify not taking it up and cancelling automatic penalties.

On the other hand if the same person were to write in making a full confession giving full details of the income and expenditure for each year, the letter will have to be read by a human being and, with a bit of luck, that person could decide that it is better to deal with the situation informally, collect the tax due informally and move on.

It is a slim chance but if a human being has to make the first decision you will have a chance. If a computer makes the first decision….

dori2o

Jimmo is right, there s a better chance of possible avoiding, or at the very least minimising penalties and interest charges b making a written decleration which confirms the net profits for each year and provides an estimate of the tax you believe you owe, along with details of how you intend to repay this amount.

By submitting the self assessment forms or the SA1 as the first method of contact, then you automatically make a 'Failure to Notify Decleration' for which HMRC can add further Failur to Notify penalties of upto 100% of the tax loss.

By sending in tax returns unsolicited, what happens is you are given 30 days to then object to the returns being processed. If you do not object, then by default, you agree to be bound by the rules governing those tax returns. That includes accepting the original submission and payment dates (31 January following the end of the tax year). That means HMRC can issue penalties for late submission going back to the date the Return should have been submitted as if it had been issued by HMRC as part of the bulk issue for those years.

It also allows them to charge interest and any payment penalties on any balances due again from their original due dates.

So, follow Jimmos advice and write in in the first instance and wait for a response telling you how they wish to proceed. Send the letter recorded delivery.

PlutoinCapricorn

As I understand it, you don't always need to self assess for small amounts of untaxed income that do not come from work: there is a form called P810 that people use for small amounts.

Just take the first step: other people have done this and report it is painless. You get more penalties if HMRC discover the income, less if you report yourself. Earning below the PA is a reasonable explanation.