In April 2014, HM Revenue & Customs (HMRC) began a campaign giving individuals with a second source of untaxed income (usually those who are both employed and self-employed) from self-employment the opportunity to update their tax affairs. HMRC expects the programme to go on for at least three years; if you are eligible to take advantage of the campaign, then you should act now.
The Second Incomes Campaign is for those individuals who pay tax under the PAYE (Pay As You Earn) system through an employer, but also have a second income from self-employment and are not declaring it to HMRC. The campaign is expected to last up to three years (until April 2017). Once you have notified HMRC of your previously undisclosed income, they will give you four months to settle the tax and NI bill and any due interest and penalties.
HMRC are increasingly focussing on these individuals that are often referred to as ‘moonlighters’. HMRC want to identify individual employees that they think may have undeclared income from self-employment – these checks will take place during the campaign period. If HMRC begins an official enquiry or compliance check into your tax affairs, you will be ineligible for the Second Incomes Campaign. As soon as you realise that you are eligible, it is vital that you notify HMRC of your wish to take advantage of the scheme, and calculate and pay the tax you owe. Otherwise you may face higher penalties later on.
Who may use this Second Incomes Campaign?
You are eligible if you are an individual, an employee of a business who is earning a second income from self-employment, but need to update your tax affairs. This second income may be from:
- consultancy fees or training
- organising events
- providing services such as a taxi, as a hairdresser, gardening services or as a fitness trainer
- making and selling crafts
- the buying and selling of any goods: if you have a market stall or sell goods at car boot sales that you have made
- And others not included on this list
Not applicable to:
- Those individuals with multiple jobs but are taxed under PAYE by all employers
- Those who are drawing a pension as a main source of income but are also self-employed
- Those whose engagers treat them as self-employed but who should be considered employed. Their employer in this case should be making the income tax and NIC deductions under PAYE. If this applies to you, contact HMRC as soon as possible. It may also be helpful to use the ESI (Employment Status Indicator) tool on the HMRC website. This will inform you whether they class you as employed or self-employed.
You may not use the Second Incomes Campaign if you are already being investigated by HMRC
If you were eligible to participate in a previous disclosure opportunity and opted not to disclose your information, HMRC could view this as deliberate. If you did not participate as you did not take reasonable care, then you should calculate your penalties based on this. If you did not take the opportunity due to a genuine error, then you will probably not be liable to pay a penalty. There is a section on the disclosure form where you may explain why you have applied a certain penalty percentage.
What do I do?
If you wish to disclose information under the Second Incomes Campaign, there are two steps you must take.
Firstly, you’ll need to tell HMRC that you wish to join the campaign and make a tax disclosure. There is not yet a deadline for notifying HMRC but you should inform the department as soon as you learn that you have undeclared second income. HMRC will acknowledge this by sending you a Disclosure Reference Number and Payment Reference Number. You may inform HMRC in a number of ways:
- Complete and submit an electronic form which you will find on HMRC’s website.
- Complete and submit a form by post to:
HM Revenue & Customs
Local Compliance Centres
Second Incomes Campaign Team S0790
PO Box 3900
Glasgow G70 6AA
- Telephone the Second Incomes Campaign Helpline.
Secondly, you must disclose and pay any due amount of tax and NIC or claim any due repayment. You may do this as soon as HMRC has sent you a Disclosure Reference Number form. You have four months from the date you receive your notification to do so. The disclosure form is on HMRC’s website.
Will I have to pay penalties?
HMRC have stated that those who act on the campaign will receive a penalty either at 0%, 10% or 20% of the due tax and NIC. The precise percentage is dependent on your individual circumstances.
It is up to you to calculate the correct penalty that applies as part of your disclosure. When HMRC receives the disclosure, they will consider whether the penalty is reasonable or not.
What if I cannot pay the outstanding tax?
If you cannot pay, it is imperative that you call the Second Incomes Campaign Helpline prior to submitting your disclosure; it may be possible to set up a payment plan to spread the cost of the outstanding tax bill. Submit your disclosure once you have discussed your payment with HMRC. You will still need to submit your disclosure within four months of receipt of the notification acknowledgement – contact HMRC as soon as you are aware of your inability to pay.
Should I seek advice?
Though HMRC has indicated that this is a straightforward process, for some it may be complex with all the notes, calculations and the details on the disclosure form which may be complex in itself.
If you have previously claimed tax credits in any tax year for which you are submitting the late return through the Second Incomes Campaign, previously granted tax credit awards may be affected if the taxable income figure is higher than the amount previously declared for the purposes of tax credits. It is possible that you will also have to pay a tax credits penalty.
It may be advisable to use a professional tax adviser, especially for those who have been receiving an undeclared second income for years. HMRC has further details on the Second Incomes Campaign at the GOV.UK website.
