The latest anti avoidance campaign by HMRC is targeting dog breeders for potential tax shortfalls. This is part of a drive to recover unpaid taxes from people who may have secured financial gains during the Covid lockdowns, as a result of increased demand for puppies.
Reports suggest that HMRC had already been monitoring the animal breeding industry anyway and had established a department in 2015 to address tax avoidance in this area. By 2019, over £5 million in undeclared income from dog breeders had been recovered. Now HMRC is actively pursuing breeders suspected of not paying the correct amount of tax when the UK became obsessed with the idea of getting a dog.
Specifics of tax compliance campaign letters
As is common practice during an HMRC tax compliance campaign, “One too Many” letters are being sent to targeted individuals who are believed to have undeclared income from breeding and selling animals. These letters make it clear to recipients that HMRC has information suggesting that the recipient has under-reported their earnings and therefore may owe tax.
Breeders receiving a letter are being given a deadline to make a voluntary disclosure of undeclared income. If they fail to respond, HMRC has warned that it could open a formal enquiry into their tax affairs, which could result in higher penalties payable or, in severe cases, a criminal investigation.
If you receive a letter like this, be aware that it is because information exists suggesting that you have received income from breeding activities – even small scale ones. HMRC uses a range of sources to track undeclared income, including third party data from pet insurers, the RSPCA, pet selling websites and social media posts. Tax returns from breeders are being cross-referenced with estimated income, and any discrepancies due to suspected under-declared revenues are likely to trigger further scrutiny.
What to do if you receive a letter from HMRC?
Carefully review your records of income from breeding and selling animals. If you have undeclared income, you will need to disclose this to HMRC voluntarily. Disclosures can be done online, and you will typically have 90 days to pay the correct amount of tax.
You may wish to get a tax expert’s perspective on your situation before approaching HMRC, to ensure that you are fully compliant with HMRC’s requirements and to understand the disclosure process correctly.
Take prompt action to avoid further penalties
This crackdown on dog breeders is part of a broader effort by HMRC to tackle tax avoidance across various sectors and new campaigns are being launched all the time. This month we are also reporting on a new campaign targeting taxpayers with crypto asset gains.
As HMRC continues to refine its data collection and analysis techniques, it’s clear that it is becoming increasingly adept at identifying discrepancies in tax reporting. Whether you are a professional breeder or simply someone who sold a litter of puppies, it is essential to ensure that your tax affairs are in order, to avoid potential penalties.
For detailed guidance about general tax compliance and making a voluntary disclosure, contact partners@rjp.co.uk.