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Stay Compliant: Navigating HMRC’s Crackdown on Undeclared Income

As the number of side hustles in the UK has increased recently, HMRC’s crackdown on undeclared income has become stricter. Starting in 2024, HMRC has made it a requirement for digital platforms to report how much income individuals are making through their sites. However, many people making extra cash through a side hustle are not aware of this requirement. Even if the income is not earned via digital platforms, the crackdown on non-salary income such as stocks and rent through estates is also becoming more difficult. If you are not aware of this crackdown and declaring extra income, you may face tax investigations by HMRC.

What is Undeclared Income?

In the UK, if your income is more than £1,000, you need to register as self-employed and report your earnings via self-assessment. If you don’t register for self-assessment, your income is considered undeclared income, which could result in an inspection or penalty.

Who Cracks Down on Your Money?

HMRC has a department to crack down on undeclared income, called Connect. Over 3,000 people are employed in Connect, which is a data-matching and risk-analysis platform that enables the cross-referencing of masses of data from HMRC and external sources.

How Does HMRC Know What You’re Earning?

Although HMRC has never revealed all the sources that Connect draws information from, it taps into over 30 databases, including tax returns, bank accounts, social media and even data from sites like Amazon, Google Street View, Zoopla and Rightmove. Through this process, the HMRC can investigate financial profits earned by companies and individuals. As it’s been already mentioned above, HMRC made it mandatory that digital platforms such as Amazon and Airbnb have to report how much income individuals are making on their platforms. Additionally, HMRC plans to integrate further artificial intelligence (AI) tools into Connect, enhancing its ability to help close the estimated £30 billion-plus tax gap.

How Can You Reduce the Chances of a Tax Investigation?

If you want to minimise your chances of being subjected to a lengthy and costly investigation by HMRC, consider the following:

Voluntary Disclosures – if you have undeclared income, consider making a voluntary disclosure to minimise penalties. This will be looked on favourably by HMRC.
Appointing an Accountant – With the advice of accounting experts, you can reduce the chances of investigation into undeclared income by maintaining comprehensive records.

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