1/ You have an obligation to tell the taxman when your circumstances change so he can decide whether to ask you to prepare a tax return.
For example, you may have:
- Started your own business
- Untaxed income from property or investments
- Expenses to claim (you need a tax return if they’re above £2,500)
- Capital Gains Tax to pay
- Also you will have to fill in a tax return if you or your partner receives Child Benefit and your income is over £50,000.
If you do not tell him within about 18 months then he may fine you £100.
If you do not tell him at all then he could find out and ask you to do a return up to 6 years later, or even 20 years later, if you deliberately did not tell him.
If he finds out rather than you owning up, then there could be extra penalties of typically 20%-70% of the tax due if you admit it immediately, but in the worst cases penalties can rise to 200% of the tax due.
Plus of course interest.
2/ Once asked to prepare a return then there are penalties for late returns. Initially £100 if you miss 31st January deadline, then £10 per day from 1st May for 90 days and then £100 every further 6 months from 31st July.
3/ If, once you do submit a return, there is tax due then surcharge penalties of 5% are levied on unpaid taxes on 28th February and every 6 month thereafter until the bill is zero. Plus up course interest.
4/ If you still do not submit a return of you own choice then HMRC can guess how much you owe and issue a determination. You can not appeal a determination. If you do subsequently submit a tax return for that period, within 4 years, then HMRC should replace the determination with an actual bill. Otherwise the determination will stand as your tax bill and be due for payment.
5/ If you deliberately do this regularly then HMRC can put you on a special list of serious defaulters who get Managed for up to 5 years i.e. make your life very difficult.
- Unannounced inspections,
- Required to prepare full accounts,
- Only able to claim for items for which you have a receipt,
- Extra checks on record keeping, etc.
- Keeping your business under observation (i.e. sit in your office & watch you work).
In summary the tax man can be very frightening and impose lots of penalties if you get on his bad side – so talk to him, prepare returns, and do not get penalties.
We are here to help you to be compliant.