Friend not paying enough tax

[Llamadramaz]

Hi,
I’m a teacher in a high school. One of my colleagues works full time as a teacher but also does a bit if tutoring on the side. A few of my friends/colleagues friends use her to tutor their kids. She charges £25per hour and people tend to pay her by bank transfer. From what I know she earns about £100-125 per week doing this. I’ve recently found out that she isn’t declaring this to hmrc. She does a self assessment return, but doesn’t declare all of this extra income.

im not about to shop her, but I think she’s skating on thin ice. What’s the likelihood of her being in major trouble?

Realistically they’re unlikely to catch up with her given the number of people doing some kind of side hustle. They may chose to audit at some point but otherwise how would they know?

In saying that if I remember rightly self assessment is becoming more automated which I think will include links to bank accounts so she may not get away with it for much longer. Morally of course it’s abhorrent and if she does get audited they go back a good few years.

If she declared the money as a "cash gift", it wouldn't be taxable would it?

No idea, but I agree with your views on tax dodging.

Is that £100pw all year round or just in the runup to exams? The first £1000 of extra earnings is tax free anyway but yes tax is due on anything above that. She's unlikely to get caught but she's still cheating her fellow tax payers - ethically worse than benefit fraud imo, I wouldn't want to be friends with someone dishonest and the money she and other tax cheats fraudulently keep gor themselves is money that our schools and hospitals need.

I think it’s just term time. She’s a lovely person but I’m worried she’s going to end up with a big bill if someone reports her

Unless it's changed, you can earn £1000 from small jobs without declaring

Well that's her problem surely? But are you sure she's not declaring it?

It seems odd that she does a tax return but doesn't declare this income when it's clearly asked about during the process. It could be that either she receives less than £1k pa, or she is declaring it and you're mistaken.

Maybe. Surely hmrc check these things out- can’t they see bank accounts etc? Perhaps it’s too ‘small fry’ for them to care??

She could get away with it, but if they do catch up with her she will likely have to pay back all the missed tax as well as interest and penalties.

They are much, much kinder if you go to them and admit you messed up.

you can earn £1000 from small jobs without declaring
That's only if you don't have a job at all.

I don’t think HMRC would accept that various people were making money gifts to her on a weekly basis

Only if you have no other income. If you have a full time job and pay PAYE you have to declare and will be taxed on every penny you earn extra. However, you can claim expenses such as computer equipment, a % of your phone bill and travel expenses.
The £1000 rule means that if you earn less than £1000 you don’t have to fill in a self assessment form. I think you still have to register with the HMRC but just tick the appropriate box.
It’s not just tax she is avoiding but also NI.

They're not stupid - if the same people are giving her money every week or month, it's obvious that she's running some kind of business or side hustle.

They can ask to see her bank statements. They can also look at your spending and whether it "tallies" with your income.

It’s tax evasion if she has earned income that she does not declare. But I guess she will get away with it. She’s unlikely to be reported & possibly even less likely to be investigated?

Why would she submit a self assessment if she's a teacher? Unless she's declaring extra income?

If I was her I'd be stressing that HMRC are going to find out tbh. But I suspect its very common.

I would imagine people who are defrauding HMRC and being paid into a bank account have a separate bank for those payments that they don’t mention on their tax return. If HMRC are able to check whether people have accounts with other banks, I doubt they do it for everyone

The penalties for tax evasion can be huge - especially if they find out by coming after you, rather than you fessing up and going to them.

There's also a huge difference between forgetting to declare some income because you missed an invoice doing your returns, and not declaring any of your income. The former is a mistake, the latter is deliberate and they take a very dim view of that.

HMRC can see your bank accounts, credit scores etc. if they want. Generally they won't look unless they're investigating though, which is why so many people get away with it.

Sorry just to add. It depends on how she operates her tutoring business. As a sole trader she can use the £1000 trading allowance, but if she has set up a limited company then she can’t.
A limited company would reduce the tax she would pay but for the amounts she is earning it may not be worth it.
It’s easy to check on the Gov site since annual accounts of all incorporated businesses are published on there.

Incorrect
you can earn £1000 from a side hustle in addition to PAYE

Definitely too small fry for HMRC to care! Why would they investigate someone for presumably a few hundred ££ when they could go after serious fraudsters that would make their many hours of work worth it. HMRC won’t know unless someone tells them. I’m in an industry with lots of self employed people and doing your own expenses (making a few numbers up) is very common

I was simply suggesting this may be how the friend declares it. The annual exemption is £3000 for cash gifts.

No you can use the £1000 for additional self employment on top of PAYE actually

Most people I know with side hustles or jobs that are paid via cash or bank transfer do this. Nail/brow tech, tutoring, trade jobs on the side. I find it really irritating as my overtime requires full deductions. They declare a bit but not all of it and hope no one checks up. None of them ever caught.

PP above is right, the first £1k from your self employed side hustle is trading allowance.

I'd be surprised she's not declaring it if she does an SA, 'forgetting' to declare extra income when you are PAYE and don't interact with hmrc is very different to actively lying on your tax return.

The only way your friend will be caught is if someone shops her. A compliance visits costs thousands and they have bigger fish to fry but they are supposed to follow up on Intel even if its just sending her a letter reminding her that all income should be declared.