Newsletter issue - January 2010.
Insurance companies often pay commissions to professionals who recommend certain insurance policies to their clients. For example; hospital consultants may recommend health insurance, vehicle dealers may propose car insurance, and lawyers may put forward accident and legal cover. The professionals in these situations should report any commissions they receive on their tax returns, but sometimes they forget to do this.
The Taxman now has wide powers to ask for information about a person's tax affairs from third parties. He can issue a notice to an insurance company asking for a list of all persons who receive commissions in a certain period, and the amounts paid to each individual.
We understand that HMRC has recently issued several such notices to a number of large insurance companies. When the information requested in these notices is received, the Taxman is likely to open enquiries into the tax affairs of a number of professionals.
If you have received some commission, however small, and you failed to disclose that amount on your tax return, now would be a good time to come clean. If you make a voluntarily disclosure to HMRC, you could benefit from a reduction in the penalty due from 30% of the tax due, down to nil. However, this penalty range (from 0% to 30%) will only apply if the Tax Inspector judges the omission from your tax return to be careless. In most cases the Taxman will view the under-declaration of commission to be a deliberate error, in which case the minimum penalty will be 20%, and the maximum 70% of the understated tax.
Please speak to us before you contact the tax office about any under-declaration of income, as the way in which you present the information to the Taxman can influence the amount of penalty charged.
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