The number of individuals participating in the UK’s ‘hidden economy’ is increasing according to recent research.
An increase in additional income streams has led to millions of taxpayers failing to declare additional earnings, according to HM Revenue & Customs (HMRC).
HMRC’s latest figures highlight the extent of this issue. They showed that an estimated 8.8 per cent of the UK’s adult population – equivalent to nearly six million individuals – are involved in the hidden economy. This figure has nearly doubled since 2016.
While most of this undeclared tax is considered low-level, with only 1.1 per cent estimated to have more than £5,000 of untaxed income, this group alone represents a significant £3.36 billion of undeclared income.
Participants in the hidden economy include those who supplement their taxed income with cash work (moonlighters), accounting for 65 per cent of the total and those who do not declare any earnings at all, which represent 35 per cent. Some businesses also contribute to this problem by failing to register for VAT.
While it is clear that some of these activities are deliberate and knowingly entered into, HMRC’s survey suggests that there is also a distinct lack of knowledge about tax obligations.
As an example, 28 per cent of those surveyed believed that if they were already paying tax, they did not need to inform HMRC about any additional sources of income as long as this did not place them into a higher tax band.
For those with income that is not taxed at source, it is vital to declare all income to HMRC, regardless of whether this means being pushed into the next tax band or not.
This includes casual work, selling goods or services, rental income, trading on platforms such as eBay and income generated from investments held outside of an ISA.
Consequences of non-declaration
Non-declaration of additional income carries significant implications for those involved.
Penalties vary in severity and in addition, interest is charged on tax that is paid late. Therefore, individuals need to ensure that they declare any untaxed income.
How to declare additional income
Individuals can declare any untaxed income to HMRC via the self assessment system.
This system requires taxpayers to report their income for each tax year, which runs from 6 April one year to 5 April the next, by 31 January of the following year.
If individuals have only recently started receiving untaxed income, they must notify HMRC by 5 October following the end of the tax year in which they began to receive the additional income.
If you are worried that you may have untaxed income which needs to be declared to HMRC, our expert tax advisors are on hand to assist.