Kirk Rice Blog

Avoid HMRC Penalties: Why Timely Tax Disclosures MatterWritten on April 2, 2026 by Jane Page

Key Points

• HMRC now has access to significantly more data through its Connect system and international reporting agreements, making it far more likely that unreported income and gains will be identified.
• The increased availability of data and automated linking to individuals means the risks of not reporting income on a Self Assessment tax return are much higher than in previous years.
• HMRC’s penalty system encourages early disclosure, with higher penalties applying where taxpayers wait to be prompted, potentially up to 200% of the tax due.
• Tax disclosures may be required even where no tax is due, including for asset disposals, rental income, foreign income, employee shares, or gifts to family members.
• It is important to disclose income or gains to HMRC as a priority while still able to notify voluntarily, rather than waiting for HMRC to initiate contact.

In the last few years, it has become far more likely that HMRC will find out about income and gains that haven’t been reported to them by a taxpayer. Their “connect” system can make links between individual taxpayers and the information that organisations report to them. The institutions that must make reports to HMRC include financial institutions, including crypto exchanges, agencies like Companies House, estate agents and council tax records. Commercial platforms like Airbnb and Paypal are also included.

Alongside this, the UK and governments from over 100 different countries have signed up to the common reporting standard (CRS). This requires financial institutions to send an annual report to their own tax authority which that authority then passes on to HMRC for clients who live here.

How HMRC’s Connect System Identifies Undeclared Income

HMRC’s capacity to answer telephone calls and deal with correspondence has been widely raised as a problem. However, they have been set ambitious targets to collect over £6 billion in tax and have been given additional resource to invest in staff and in continuing the development of technology to tackle the “tax gap”.  There is now a greater amount of information available to HMRC, and sifting the data and linking to individuals can take place automatically. This means that the risks for people who don’t report their income and gains on a Self Assessment tax return are much higher than they would have been a few years ago.

Why Failing to Disclose Income Could Cost You More

When income/gains on Self Assessment tax returns go unreported, HMRC’s approach to penalties is designed to incentivise the taxpayer to make a disclosure.  The system intentionally penalises the taxpayer who waits to be “prompted” into making a disclosure to HMRC. It does so by charging penalties that can be as high as 200% of the tax due.

The design of the penalty regime as well as the greatly increased likelihood that HMRC will become aware of unreported income or gains means that it will be increasingly risky to not properly disclose taxable receipts.

When & How to Make a Tax Disclosure to HMRC

The requirements of the tax system can mean that it’s necessary to disclose income/gains even when you don’t believe there is tax to pay.  This is the case for example:

• If you sell assets worth more than £50,000, even when there is no taxable gain
• If you receive rental income of more than £1,000.  You might have income from a rental property that is taxable even if you think you didn’t make a profit, because it is no longer possible to claim mortgage interest paid as a fully deductible expense
• If you receive foreign income/gains, even when there is foreign tax withheld or paid on a tax return (although there is an exception for people who are non-domiciled or who have lived abroad)
• If you sell shares that you brought through your employer or shares were given to you by your employer, even if tax was paid on the award
• If you have given away an asset to a family member.

We would strongly recommend that if you think you might have income or gains that need to be reported to HMRC then you should seek advice and approach HMRC to disclose the receipt as a priority, and that you do this while you are still in the position of notifying HMRC and not responding to their prompted discovery.

Our tax specialists have a wealth of experience dealing both with disclosing foreign income and UK income and negotiating with HMRC. You can get in touch with us via info@kirkrice.co.uk – our team are happy to help.

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