What penalties await you if you don't file your Self Assessment tax return?

Adam worked full-time as a firefighter. One day, he decided to try his hand as an Uber driver. He started driving casually in his free time and quickly realized he could earn more this way than in his full-time job. So, he decided to quit his permanent job and focus solely on working for Uber.

Failure to declare self-employment income

Adam contacted an accountant to handle his tax returns. Unfortunately, it turned out the accountant had defrauded Adam and never submitted any returns to HMRC. Our client was confused and concerned about the poor communication with his accountant but decided to continue working for Uber, unaware of the need to declare his income to HMRC.

Years passed, and Adam worked hard, earning more and more money.

HMRC demands an explanation

Eventually, however, he received a summons from HMRC's Risk and Intelligence Service Offshore. The tax authority demanded an explanation as to why no taxi income declaration had ever been filed. The letter included information about the need to seek specialist advice and an instruction to complete a Certificate of Tax Position form within 30 days.

Adam realized he had been defrauded and decided to rectify the situation. He approached me for help to resolve the matter with HMRC legally.

Adam told me that the accountant had been charging him fees for several years, but he had no proof of this. Our client was aware that the responsibility for correctly declaring income to HMRC lay with him (in accordance with the Tax Management Act 1970).

In the tax authority's guide, you can find a list of reasonsthat are not considered reasonable excuses for failing to file and pay tax on time. These include not receiving a notice from HMRC and difficulties using the Gov.uk system. Two other reasons listed are:

• lack of awareness or misunderstanding of a legal obligation;
• relying on someone else to submit a return.

These were the reasons that applied to Adam's situation.

Adam did not have a Unique Taxpayer Reference (UTR Number), which suggests that HMRC was unaware of his Uber income until they received this information directly from the app owner. In recent months, I wrote an article on Mamona about the tax authority targeting taxi drivers. That article can be found here.

How to salvage the situation - talk to HMRC

Our client realized he needed to review his tax situation and ensure everything was in order. He was also informed that false statements could lead to criminal proceedings.

With the help of my team partner, Ania Josiek, Adam responded in writing to the letter, providing the required explanations. He also outlined the reasons why his tax return was not filed on time and why the data was outdated. He demonstrated a willingness to cooperate with HMRC to rectify his situation and determine if he had any additional tax liabilities.

What penalties apply for not filing a tax return?

Penalties for undeclared income depend on how the omission occurred. If a taxpayer deliberately fails to declare income to HMRC and intends to conceal it from the authorities, the penalty is 100% of the potentially lost revenue (i.e., the tax unpaid over all those years). If errors are deliberate but not concealed, the penalty is a maximum of 70%. In all other cases, the penalty is a maximum of 30%.

Tax Disclosure: How to Settle with HMRC

After discussing the entire matter with us, Adam decided that the best option would be to use the procedure known as Tax Disclosure (the equivalent of the Polish 'czynny żal' or 'active repentance' - you can find an article on this topic here) and file an amendment to his tax return. He knew that this way he would avoid the highest penalties and could sleep soundly, without worrying about his tax situation.

Ania, mentioned earlier, was responsible for the proper execution of the procedure. All of the client's tax documentation was reviewed and provided to the tax office. Ania also prepared an explanation stating that the lack of due diligence in the tax returns occurred without premeditation on Adam's part. As a result, HMRC decided to apply a minimal penalty of only 20% of the unpaid tax.

Our client was pleased that, with our help, he was able to calculate the unpaid tax, quickly resolve the matter with the tax office, and minimize penalties. He will also remember that in the future he needs to pay more attention to his tax filings to avoid a similar situation.