HM Revenue and Customs have launched a new scheme to encourage plumbers and those in the building trade to fully disclose their income, but it be used by anyone who has undisclosed tax to declare. It allows those who have not declared their income to HMRC to come forward by 31 May 2011, and those do will be rewarded with a lower penalty rate than that which is normally charged on outstanding amounts found by HMRC during an inspection.

The disclosure must be made and any tax, interest and penalties due must be paid by 31 August 2011, and in the event that the taxpayer is unable to pay the full amount by that date, it may be possible to agree an instalment payment option with HMRC. The favourable terms available under the plan will not be available to those who do not notify their intention to disclose by 31 May 2011.The plan has two stages, notification and disclosure.

The notification stage, which must be done by 31 May 2011, requires the taxpayer to tell HMRC that they wish to be involved in the plan. At this stage it is not necessary to provide details of undeclared income as this is disclosed later. HMRC will confirm that they have received the notification to disclose and provide a disclosure reference number (DRN), which must be quoted on the disclosure. Disclosure is the second stage and this must be done by 31 August 2011, and as part of the disclosure it is necessary to work out the tax and Class 4 National Insurance due for each year and the associated interest and penalties.

Although normally penalty rates can be as much as 100% of tax undeclared, under this scheme penalty rates are 0%, 10% or 20 % depending on the reasons why the tax was not paid, and the number of years for which tax has to be disclosed will also depend on the reason for non-disclosure. Where reasonable care was taken, the window is four years, in cases of careless mistakes the window is six years and in cases of deliberate default, it may be necessary to go back 20 years.

As is often the case, for every carrot there is also a stick, and in this case, HMRC will vigorously pursue those who do not come forward voluntarily. In preparation for the plan, they have been using their investigation powers to collate information on plumbers’ tax affairs and this may be used to open an investigation into the affairs of those who do not come forward.