How Much Information Should You Give HMRC?

When dealing with HMRC, there's a spectrum of opinion on how much information to disclose.

While some taxpayers feel compelled to divulge extensive details, others remain tight-lipped. However, finding a balance is essential.

HMRC Requirements

Filling in Self-Assessment Tax Return

When HMRC sends you a Self-Assessment tax return form, it's imperative to complete it accurately, providing all required information to avoid penalties.

This includes answering all questions thoroughly and honestly.

Unprompted Disclosure

In scenarios where you haven’t received a tax return but have taxable events, such as capital gains from asset sales, you must proactively inform HMRC.

For instance, if you sell an asset and make a capital gain, even if you haven’t received a tax return, you’re legally required to notify HMRC.

For residential property gains, this must be done within 60 days using HMRC’s software, and the tax must be paid within that period.

Similarly, if you acquire a new source of untaxed income, like rental income, and are not yet in the ‘self-assessment club’, you have six months from the end of the tax year to inform HMRC and request a tax return.

To Disclose or Not to Disclose?

General Rule on Extra Information

Adding extra information beyond what’s required on the tax return generally isn’t advantageous.

HMRC's system is highly automated, with minimal human intervention.

Providing unnecessary details could lead to drawn-out correspondence with inspectors, which is often more trouble than it's worth.

For example, sending a letter explaining that a property sale isn’t taxable because it was your main residence is often unnecessary.

Using ‘White Spaces’ in Tax Returns

Self-Assessment tax returns feature ‘white spaces’ for additional information. While it might seem helpful to elaborate on figures, it rarely benefits the taxpayer.

Over-disclosure can inadvertently invite scrutiny and suspicions of underpaid taxes. If the additional information could imply that more tax might be due than you’ve self-assessed, there’s no real upside in providing it.

The basis of personal taxation in the UK since 1996 has been self-assessment, meaning you decide your tax liability initially, not HMRC.

The Concept of ‘Discovery’

Discovery Assessments

If HMRC ‘discovers’ under-assessed tax, they can raise assessments, typically within four years of the tax year, longer if there’s careless or deliberate misreporting.

Some suggest that using the ‘white spaces’ can pre-empt discovery assessments by making details transparent.

However, legal cases often favour HMRC, indicating that even disclosed details can be ‘discovered’ later under revised interpretations.

Almost anything can be a discovery, including HMRC changing their mind about how a fact should be interpreted.?

Dealing with Genuine Uncertainty

Seeking HMRC’s Advice

If uncertain about a transaction’s tax treatment, you might consider seeking HMRC's advice.

However, be prepared for HMRC to favour interpretations that increase tax liability.

Consulting a professional tax adviser for an opinion you can rely on is often a safer bet.

Professional advice can also shield you from penalties if HMRC disagrees with your position.

For instance, if there’s uncertainty about the tax treatment of a cashflow or transaction, a professional adviser can provide guidance that helps you avoid potential pitfalls.

Final Thoughts

Striking a balance in how much information to disclose to HMRC is crucial.

While meeting the basic requirements is mandatory, over-disclosure can lead to unnecessary complications.

It’s often more sensible to go to a professional tax adviser, such as Tax Expert, who can provide a reliable view and help deal with the complexities of tax reporting.

With our extensive experience, we can help you deal with HMRC efficiently – even when HMRC send out pre-emptive letters rife with accusations on money you may or may not owe them.

We have saved countless clients from overpaying HMRC, and we can help you too.

If you need URGENT help, contact us on our 24/7 WhatsApp on 07787 010190.

Otherwise, you can send us an email through this short form , or call us on 01772 788200.