HMRC has recently updated their guidance to making a disclosure under the Second Incomes Campaign.
The campaign is open to individuals in employment who have an additional untaxed source of income, to bring their tax affairs up to date and secure more favourable penalty terms, should a penalty be relevant.
Second incomes could include such things as:
HMRC is targeting tax evasion through second incomes and will use information it holds on its digital intelligence systems to identify people who might not have declared all their income. This will involve HMRC carrying out checks or enquiries to resolve matters. In these circumstances, taxpayers won’t be able to make use of this campaign opportunity.
Those who make a full and voluntary disclosure of all unpaid liabilities can expect a lower penalty than HMRC would otherwise seek if they raised an enquiry or compliance check without the disclosure.
At this point individuals do not need to provide details of their undisclosed income or the tax arrears. Notification is by way of completion of the DDS form. HMRC will then write to the person to advise of their unique Disclosure Reference Number (DRN) and Payment Reference Number (PRN).
As soon as a person receives their DRN they must make their disclosure within 90 days of the notification acknowledgement. At the same time the disclosure is actually made that person must also pay the tax they have calculated on the net rental income. This must also include the interest that the taxpayer has to calculate by reference to HMRC’s calculator.
If the landlord has made a loss then no disclosure is necessary but they will need to amend their tax return to enable them to claim the necessary loss relief.
It is a condition of using the Second Incomes Campaign that a person makes an offer for the full amount of everything they owe. The offer, together with HMRC’s acceptance letter, creates a legally binding contract between the taxpayer and HMRC. The letters of offer are included in the disclosure forms.
A condition of taking part in the campaign is that all previously undeclared income is included in the disclosure as well as the second income. This may include:
The following tax liabilities however cannot be included in a disclosure:
A person can, however, indicate on the disclosure that they need to resolve such issues and their details will be passed on to the appropriate department within HMRC.
Some disclosures are unlikely to be accepted under this campaign. These include disclosures that are found to be materially incorrect or incomplete when checked by HMRC.
Where HMRC has already notified their intention to open an enquiry or compliance check before a taxpayer indicates their intention to submit a disclosure under the campaign, then this too is likely to be refused. In these circumstances, an individual should tell the person conducting the enquiry that they want to make a voluntary disclosure.
Quite understandably, disclosures where HMRC believes the money that is the subject of the disclosure is the proceeds of serious organised crime, will be rejected.