Penalty for undeclared income where no tax/NI due?

[TheCyclingProgrammer]

Hypothetically speaking...

Somebody I know does some work online on a fairly casual basis - they essentially "vet" online reviews according to various guidelines. The online system tracks the time they spend doing this and they are paid by the hour at a set rate. There is no employer/employee relationship, but there is a question over whether or not this constitutes self-employment or is simply casual earnings (I certainly don't see it as a "business" or "trade" - its simply a way of earning a bit of extra money on the side).

The numbers we are talking about here are small - less than £2k a year, normally closer to £1k. This person is otherwise unemployed so the income is well within their personal allowance. The person has been doing this for about three years and the income has never been declared as they did not already fill out a self-assessment.

This year, the person is required to fill out a self-assessment for other reasons and are wondering if this income should now be declared, on the basis that as they are filling out a self-assessment anyway, it would be an inaccurate return to omit it. My feeling is that they should just enter it into the box for "casual earnings" and be done with it.

The main concerns are:

* If HMRC were to disagree that these are "casual earnings" but that the person should have declared themselves as self-employed, they may question why they did not notify them (and why the person has not been submitting a SA before now).

* Likewise, if this was self-employment, I understand that the person should have been playing class 2 NI contributions. The amount is well within the limits for a small-earnings exemption but does that still apply if you haven't registered and applied for a SEE certificate?

* Would any penalties apply to the above?

Given the amounts involved and the fact that no income tax would have ever been due, is there really anything to worry about?

You could say: just omit it entirely. It hasn't been declared before so why declare it now. I would argue that it hasn't been declared up until now as there was no need to, but now that they are submitting a SA, they should to keep everything correct in order.

Thoughts?

[Project Monkey]

Hypothetically speaking...

Somebody I know does some work online on a fairly casual basis - they essentially "vet" online reviews according to various guidelines. The online system tracks the time they spend doing this and they are paid by the hour at a set rate. There is no employer/employee relationship, but there is a question over whether or not this constitutes self-employment or is simply casual earnings (I certainly don't see it as a "business" or "trade" - its simply a way of earning a bit of extra money on the side).

The numbers we are talking about here are small - less than £2k a year, normally closer to £1k. This person is otherwise unemployed so the income is well within their personal allowance. The person has been doing this for about three years and the income has never been declared as they did not already fill out a self-assessment.

This year, the person is required to fill out a self-assessment for other reasons and are wondering if this income should now be declared, on the basis that as they are filling out a self-assessment anyway, it would be an inaccurate return to omit it. My feeling is that they should just enter it into the box for "casual earnings" and be done with it.

The main concerns are:

* If HMRC were to disagree that these are "casual earnings" but that the person should have declared themselves as self-employed, they may question why they did not notify them (and why the person has not been submitting a SA before now).

* Likewise, if this was self-employment, I understand that the person should have been playing class 2 NI contributions. The amount is well within the limits for a small-earnings exemption but does that still apply if you haven't registered and applied for a SEE certificate?

* Would any penalties apply to the above?

Given the amounts involved and the fact that no income tax would have ever been due, is there really anything to worry about?

You could say: just omit it entirely. It hasn't been declared before so why declare it now. I would argue that it hasn't been declared up until now as there was no need to, but now that they are submitting a SA, they should to keep everything correct in order.

Thoughts?

Just declare it and be done with it. Provided other income does not go over the upper threshold, then any tax potentially due would be minimal.

[BlasterBates]

Better to declare it than let someone from HMRC find out. That then puts you on the spot i.e. you'll have to prove your innocence. If the invoice is matched up and declared somewhere it's a non-issue.

My view is don't mess with the tax authorities they're bigger than you.

[TheCyclingProgrammer]

Better to declare it than let someone from HMRC find out. That then puts you on the spot i.e. you'll have to prove your innocence. If the invoice is matched up and declared somewhere it's a non-issue.

My view is don't mess with the tax authorities they're bigger than you.

I have no problems with declaring it on the tax return - there is no income tax due on it, whichever way you classify the earnings. There is no intention to deceive HMRC here, just a question over whether £1k or so in Box 16 "casual earnings" would raise any eyebrows.

My only concern was what would happen if HMRC challenged the self-employment status, or if its a non-issue. I'm inclined to think, in the unlikely event that HMRC challenged it, that it still wouldn't be an issue but I'm not certain.

If it's definitely casual earnings, then I am satisfied that no return was due prior to 2012/13 - there is no need to notify HMRC that you need to fill in a SA if you aren't liable for any tax. (source: SALF210 - Self Assessment Tax Returns: other taxpayer obligations: requirement to notify chargeability).

If it was considered to be self-employment income, then from what I can see there is still no income tax due but there is the question of class 2 NI contributions. The earnings are well below the SEE threshold so retrospectively I'm not sure any class 2 NI contributions would be owed either.

Also, if there is no tax due, can HMRC even give you a "failure to notify" penalty? I know there is an automatic £100 fine for not submitting your tax return on time, but is that relevant if HMRC haven't asked you to submit one?

Probably over thinking this for the sake of £1k a year.

[Clare@InTouch]

As a taxpayer it's your responsibility to notify HMRC if you need a tax return, so the £100 late filing penalty would likely still be charged in many cases. That being said, I'd imagine no action would be taken in this case if it was handled nicely. Encouraging HMRC to play nice normally involves you being upfront and honest though, so if I were him I'd be calling HMRC to let them know about the "oversight" and telling them it was a genuine mistake if they take issue with it.

I assume there's no impact on benefits that may have been claimed....?

[TheCyclingProgrammer]

As a taxpayer it's your responsibility to notify HMRC if you need a tax return, so the £100 late filing penalty would likely still be charged in many cases. That being said, I'd imagine no action would be taken in this case if it was handled nicely. Encouraging HMRC to play nice normally involves you being upfront and honest though, so if I were him I'd be calling HMRC to let them know about the "oversight" and telling them it was a genuine mistake if they take issue with it.

I assume there's no impact on benefits that may have been claimed....?

The thing is, I'm not sure there has been an oversight. I don't think it qualifies as self employment therefore the other earnings box on the tax return would seem appropriate.

The reason for filing a SA for 2012/13 is unrelated to this income.

For previous tax years, as no tax would have been due, then assuming my assertion that is just "other income" is correct, no return would have been required as there was no net tax liability.

No impact on benefits. This person doesn't not claim benefits.