What is it?
This arises when you have failed to tell HMRC about any changes that could affect your tax or National Insurance liability, therefore have under-declared income or over-claimed expenses. These are the most common and usually fall within COP 8 or COP 9 investigations, often resulting in a penalty and interest charges if more than 12 months ago from the filing deadline for that tax return.
These range from accidental oversights in submitting information (which then incur between 10% and 30% penalty) to the more serious, deliberate and intentional where penalties could be charged at as much as 100% of the tax owed.Useful links
Case Study
Background
Our client engaged our services due to failure to declare rental income. This was further complicated as they lived abroad, so should not be receiving the rental income gross unless registered for the non-resident landlord scheme (where taxes should be deducted by the tenants/managing agent). Our client spent their time between the UK and abroad throughout the year.
It became apparent that our client was resident for UK tax purposes, so we only had the failure to declare income.
Action
As a UK Citizen, their income less expenses on the rental was less than the personal tax allowances so there was no tax to pay. Under the circumstances, HMRC were willing to waive the penalties for the non-completion of tax returns as our client had contacted HMRC advising them of the rental income which there were records to this effect. They had failed to set our client up within self-assessment twice in two years.
Conclusion
HMRC decided that my client had done all that they could to comply, there reduced the position completely to £0.