According to a recent survey an increasing number of students are receiving private tuition, with one estimate now putting the value of the private tutoring industry in the UK at £7.5 billion. The COVID-19 pandemic, and the increase in competition for places at top universities, have contributed to more students turning to private tutors to give them that additional support to help them achieve their own personal goals.
Online tutors are easy to find and there are many websites offering to match students to tutors, but how many tutors consider the potential UK tax reporting obligations arising from their endeavours?
What will private tutors want to know?
Every tutor can receive up to £1,000 of income each tax year (the “trading allowance”) without having to pay tax on this income. The trading income can be from self-employment or casual services. So, if a tutor is earning less than £1,000 in a tax year from an online platform there will be no requirement to notify HMRC of this source or make a disclosure.
Any tutor earning more than £1,000 in a tax year from tutoring is likely going to need to disclose this annually to HMRC on a tax return.
New legislation
New regulations came into force on 1 January 2024, known as “The Platform Operators (Due Diligence and Reporting Requirements) Regulations 2023” which require online platforms to share information they collect with HMRC about who is earning what on their platform. This information will start to be collected from 1 January 2024.
This will impact tutors who use online platforms. For the avoidance of doubt, it does not matter if a tutor uses one or more online websites, as the information HMRC receive will be pooled to identify any tutor who has a potential undisclosed UK tax liability.
The first reports made by the online platforms about their users must be submitted to HMRC before 31 January 2025. As such we expect HMRC will consider opening a targeted disclosure facility aimed at users of online platforms in the coming months. If they choose not to, then we expect the majority of disclosures will be made using the existing Digital Disclosure Service (DDS) – see here.
If a disclosure is required to HMRC with respect to past tax years, then it is always better to be proactive and not wait for HMRC to come calling. Tutors in this position should seek professional advice.
What to do if a disclosure is required?
This depends on the specific facts of the case which should be considered on its own merits. For most cases, an online notification is made to HMRC informing them of an intention to make a disclosure under the Digital Disclosure Service (DDS). On receipt of the letter confirming the taxpayer’s acceptance into the DDS HMRC allow 90 days for the taxpayer, or their advisor, to calculate the tax, interest and potential penalties due. Menzies approach is to also prepare and submit a separate disclosure letter to HMRC to explain the background and make representations on the taxpayer’s behalf.
The tax calculations can potentially go back up to 20 years depending on the circumstances. The nature of the underlying “tax offence”, i.e. whether it is an error in a filed return or whether no tax returns have been filed, as well as the “behaviours giving rise to the loss of tax”, will determine how many years to include in the disclosure.
In more serious cases it may be necessary to consider making a disclosure to HMRC under the Contractual Disclosure Facility and Code of Practice 9 (COP9) to protect the taxpayer from any risk of criminal prosecution.
What happens if you do nothing?
If you need to make a disclosure and choose not to come forward, then you can expect HMRC to open an enquiry into your tax affairs at some point in the future. The downsides of adopting this approach include:
- Not retaining control over the HMRC investigation and facing uncertainty that can last many months or years.
- Higher financial penalties.
- The risk that HMRC will start focusing on other aspects of your tax affairs, even if there are no other issues to disclose.
If you are a tutor and would like to discuss your circumstances with us in confidence, please contact Menzies’ Tax Disputes and Disclosures team on our free confidential helpline below.