HMRC is contacting individuals who may need to pay tax on income from breeding animals. When should you declare such income, and what should you do if you receive a letter?
If you make money from breeding animals, e.g. dogs where you sell the puppies, you should check whether you may have a tax liability. As a general rule, if you earn over £1,000 from the activity during the tax year, the income should be reported to HMRC. You only need to do this if the total amount of income exceeds £1,000 and it’s your only source of “trading” income - but you would need to declare it in full if, for example, you earn other income as a self-employed individual or partner.
You should check whether the activity means you need to register for self-assessment and complete a tax return, or non-compliance penalties could apply despite no tax being due. If the income before any expenses is more than £1,000, you will need to declare it.
It’s possible that you have made money related to animals where there was no intention to trade on a commercial basis, e.g. where you purchase a pet that is already pregnant and you’re not aware of this. The question of whether this situation would lead to a tax problem is not a straightforward one, especially if the amounts involved are significant. HMRC has guidance on whether a trade exists.
If you receive a letter, don’t ignore it. If applicable, you should tell HMRC that your circumstances are such that there is no need for further disclosure, i.e. if your income from all self-employments (including animal breeding) is below £1,000. Alternatively, use the voluntary disclosure facility within 30 days of the letter date. Note that in doing so HMRC will apply a lower penalty (if at all) based on the disclosure being prompted, than if the income isn’t disclosed and HMRC finds out via an investigation.
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.