undeclared income

Hi there,

About five years ago I - like thousands of others at the time - was made redundant. However, I managed to pick up bits of work from friends for about two months before returning to a full-time job that I've kept since then. During those two months I guess I made a enough cash which kept me going as a sole trader and then a good full-time offer came my way and I accepted. Since I went back to full-time work and PAYE I haven't done anything about filing a return based on those two months simply because I haven't had time and don't have any documentation but it's been on my mind and I don't want to suddenly be publicly humiliated if the Revenue come calling.

Like many others I am becoming aware of many taxation entitlements I have never claimed (rent, health, pension) and know that I am entitled to claim for various things up to four years back. Does the same rule apply for previous earnings? ie. Revenue will not chase you after four years?

Before anyone leaps on me I had no intention of not paying tax and do believe in paying my fair share like everyone else. I have been a PAYE worker for well over a decade and those two months when I was made redundant were the only blot on the horizon. Anyone got any ideas about what I should do?

Since last year (?) there is a four year limit (previously seven?) on how far back you can claim outstanding tax credits, allowances and reliefs. In contrast I think that there is either a ten year limit or none at all on how long Revenue can chase up outstanding tax liabilities.

sounds like a trip to a good accountant would be worth the money he/she costs as during those 2 months there were probably inumberable entitlements that you didn't claim or even know you could apply for.

How much money are we talking about here roughly? It can't have been a huge amount in two months. It's possible that the cash from friends would fall under the threshold for gifts. It's not too wild a suggestion to say that someone who was made redundant received a helping hand from some friends.

Unless you were spetacularly successful in your nixers you should have a very small liability. If you were succesfull enough to have a big liability then you probably woudn't have bothered going back to full time.

If you want to post some figures we may be able to help you calculate the tax you should have paid, alternatively talk to an accountant or directly to revenue.

Another alternative is to say this was a small amount and let it go, but also let go any unclaimed entitlements. That's probably the easy way out, and since the amounts on both sides are so small I don't think anyone including revenue would object too strongly to that approach. There are cases where it is uneconomical for Revenue to pursue, and they're not idiots.

Depending on your personality, you may be the kind of person that never quite lets go of an issue like this and you'd like to have it sorted. In that situation, get an accountant, or talk to Revenue directly. They're actualy pretty helpfull. Like anything else you can get a bad one, but I've *almost* always found them to be helpful.

One final thing, sometimes in life the need arises to get a Tax Clearance Certificate for one reason or another. This is one very good reason for making sure that you are 100% legit.

-Rd

Hi,

Couldn't class it as gifts because it was payment in return for services provided. In those two months I reckon I could have earned up to 4 or 5k. I genuinely had a choice to go into business as a sole trader working for myself but opted for the relative security of a salary. I've been paying rent in the same house for 6 years and never claimed rent relief and was about to do so, but this is on my mind. Currently saving for a mortgage and that's another reason why the last thing I want is to run afoul of the Revenue.

Citizen.

Hi Jake - Would you have been a higher rate taxpayer in that year? If so, your liability to revenue could be around €2k. If not, maybe €1k. I'd suggest that you should approach Revenue directly. It doesn't seem to be worth the expense of involving an accountant to me. I'd guess that you should simply do a tax return for that year, showing your additional income on top of your normal PAYE income. Revenue would then issue a balancing statement to you, and would probably collect the outstanding debt by adjusting your tax credits for this year.

Thanks RainyDay, that sounds like a workable option. Perhaps I could also work a deal with them whereby money owed to me from Revenue for the last four years rent and pension relief could offset/reduce any outstanding balance. Anyone dealt with Revenue in this way before?

I would count the option of approaching Revenue directly to be an extremely foolhardy one as you are possibly exposing yourself to automatic imposition of interest and penalties.

Revenue will certainly not offer much constructive advice on whatever possibilities there are to minimise your liability through legitimately claiming expense deductions, or on how to present your case to Revenue in a way that will minimise the possibility of interest or penalties being imposed.

Unless the amounts involved are very small, (in which case you have little to worry about in the first instance) the expense of involving an accountant to advise you on these issues should on the law of averages repay itself a number of times over in terms of saved tax.

Citizen Jake,

Would have to agree with Ubiquitous, professional advice should be sought, its unlikely you will have a big liability, but an accountant will insure that you get the benefit of applicable reliefs and expense deductions etc. thereby minismising your tax bill, the accountants fee is also a tax deductible expence.

Regards,

Ikeano

Citizen Jake said:

Perhaps I could also work a deal with them whereby money owed to me from Revenue for the last four years rent and pension relief could offset/reduce any outstanding balance. Anyone dealt with Revenue in this way before?

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No "deal" should be required in order to do this. If you owe outstanding tax and also are due outstanding refunds/allowances/credits then these will automatically be offset against each other as appropriate. However in relation to your outstanding tax liabilities you should get a better idea of what these are and what the implications could be. If necessary, as mentioned above, get independent, professional advice.

Revenue will certainly not offer much constructive advice on whatever possibilities there are to minimise your liability through legitimately claiming expense deductions, or on how to present your case to Revenue in a way that will minimise the possibility of interest or penalties being imposed.

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I'd have to disagree with this. I understand why that perception would be out there,
But I've never had a serious problem with Revenue. It's clear from the pages of this site that I have a lot of bad things to say about many institutions of the state, so I don't say this lightly. In a one on one conversation about your taxes I'd be very surprised if you didn't get a helpful response.

I don't necessarily agree with some of the overall high level ways that revenue operate, but when you get down to the level of individuals dealing with the public they are not at all bad.

Given the amounts involved an accountants fees might end up being more than the tax liability. I think it this instance I'd get on the phone to revenue immediately. Unless you know an accountant who can offer some advice as a friend.

For what it's worth, I have had revenue write to tell me they owed me money, and I've had them write to tell me I owe them money. And even though I didn't need it explained to me they did suggest offsetting one against the other. The amounts were tiny, in the order of a hundred or two. I'd like to think they'd behave the same with larger amounts.

-Rd

I think that the point is that Revenue will most likely not offer advice on (legitimate) financial engineering that may be possible to reduce tax liabilities or penalties. At best they will just tell you what the relevant rules are and sometimes they can (and have) given out incorrect information that, acted upon, would not ensure that the individual's financial situation was as advantageous as it could have been or even that their tax affairs were not correctly up to date. None of this is "advice" - they are simple giving out info and it's not always accurate or all encompassing. One can only get this for sure from a reliable, independent, professional tax advisor or accountant. I think that recommending this course of action is quite prudent especially if the amounts involved are large in absolute or relative (e.g. relative to one's overall net worth) terms.

Indeed. Added to this is the point that when it comes to dealing with liabilities voluntarily declared by an individual, the strictly correct procedure for Revenue to adopt involves automatic inclusion of interest and penalties on the final settlement. However, in some cases Revenue do not enforce this, presumably when they are confident that the returns submitted are complete and in order and where they are happy that the individual has acted in good faith with them.

The size of individual liabilities can vary enormously depending on which approach is taken. Part of the function of specialist advice is to inform the individual of what they should do in order to maximise the potential of favourable treatment.

Btw, this has nothing to do with the levels of customer service, courtesy or efficiency of Revenue officials.

ubiquitous said:

Btw, this has nothing to do with the levels of customer service, courtesy or efficiency of Revenue officials.

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Agreed - just to clarify I was not engaging in Revenue bashing and (with a few minor exceptions) have always found them helpful and fairly efficient to deal with. I would just not depend on individual Revenue employees for authoritative information never mind advice on tax matters as they can and do make mistakes.

I was just pointing out that in my limited experience they did

"offer much constructive advice ....... on how to present your case to Revenue in a way that will minimise the possibility of interest or penalties being imposed."

and I thought the following was a little harsh:

"I would count the option of approaching Revenue directly to be an extremely foolhardy one"

Given the small amounts involved here, accountants fees may be more than the tax liability. My advice would be to make Revenue the first port of call.

If you have an accountant already then fine, it may not cost much extra to run it by him, but for somone who would have to seek out an accountant or tax advisor, i'd have thought it was overkill.

If they figures involved was 10,000 plus, then I'd agree fully, get a professional working for you on it.

-Rd

"I would count the option of approaching Revenue directly to be an extremely foolhardy one"

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Anyone with direct experience in this area will know this to be the case.

Given the small amounts involved here, accountants fees may be more than the tax liability

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This may well be the case if good advice is taken. However this is hardly the issue. What should be compared is the cost of advice against the potential loss (in terms of extra tax liability) if no advice is obtained, and the probability of this loss arising. Remember, no advice is often more costly than good advice.

Anyone with direct experience in this area will know this to be the case.

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I have direct experience of it. I wouldn't call it foolhardy.
It would be foolhardy to approach them about 10K or more without getting advice. We're talking here about a liability of probably 2K or less.

What should be compared is the cost of advice against the potential loss (in terms of extra tax liability) if no advice is obtained, and the probability of this loss arising. Remember, no advice is often more costly than good advice.

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I thought that's what I was comparing.
I'm not saying anything about the very sound general rule of seeking professional advice. I'm just talking about this very specific case, involving very small amounts of money.

We can leave it up to the original poster to make up their mind, but in my opinion (that's all it is), in this specific case, an initial phone call to revenue would be the best option.

-Rd