Have you ever left anything off your tax return because you think you will never get caught? The taxman has a number of resources in which to gather information.
Don’t be tempted to leave something off your tax return because you think the Taxman will never find out. He has the power to gather information from a wide range of Government bodies and other sources.
For example, when you buy a property the details of the purchase price and the owner’s name are recorded at the Land Registry. The Taxman can match the Land Registry records to your personal tax returns, and may enquire how you funded the purchase. When you sell a property that is not listed as your home address, the Taxman will want to know why you did not report the profit made on your tax return. Some or all of the profit may be exempt from tax if you lived in the property for a period, but you need to have evidence to prove that you did live there.
If you let a property using a letting agent, that agent is obliged to provide the Taxman with a list of the landlords and properties they deal with, if requested to do so. This also applies to overseas properties. Overseas letting agents are often obliged to provide the local tax office with lists of any non-resident landlords on their books. This information can then be passed back to the Tax Office of the landlord’s home country.
Banks have come under pressure recently to disclose to the Tax Office the names and addresses of UK residents who hold accounts with their overseas branches or associated organisations. Details of account holders were stolen from Swiss and Liechtenstein banks some years ago, and were sold on to various national tax authorities. The UK Tax Office now has a copy of the list of UK resident account holders and is using that information to open investigations into a number of UK taxpayers.
All UK banks and Building Societies are required to make an annual report to the Tax Office of the interest paid on deposits in UK accounts. These details are routinely checked against personal tax return records, so any undeclared bank accounts will be discovered by the Taxman eventually.
The Tax Inspector will search the internet for information on individuals and businesses who have high risk rating in their files, and hence may be picked for investigation. If you exaggerated facts about your business online you will have to explain away those claims during a tax investigation.
Attempts to conceal your income can also be undermined by online searches. A DJ was recently caught out in a tax investigation as his gigs were advertised online, but he hadn’t declared all of his appearance fees.
Car registrations are another useful source of information. The Taxman can ask the DVLA to confirm the identity of the registered keeper of any car. If the vehicle is a company-held car the Tax Inspector will cross-check to the forms P11D (record of benefits and expenses provided to employees) submitted by that company.
If you make a deliberate attempt to conceal something from the Taxman, you can be hit with a penalty of up to 100% of the tax due, when he finds out. However, the Taxman is aware they people do make mistakes, so he will not charge a penalty if you took reasonable care to complete your tax return accurately, but the error still occurred.
If you need to correct your tax return after you have sent it to the Tax Office you can do so within 12 months of the final filing date. Say you forgot to include some bank interest on your 2008/09 tax return. You can amend that return before 31 January 2011 either by writing to the Tax Office, or if you submitted the return online you can correct it online as well. If the additional income reported results in extra tax due, you need to pay that tax as soon as possible, and explain to the Tax Office how the error occurred.