A person may have to declare income from the breeding or sale of animals if their sales exceed the tax-free trading allowance of £1,000 for a tax year. Other factors will apply, including whether they have other taxable income.  

Making a voluntary disclosure 

If the person has income to declare for a previous tax year, the letter states that they should tell HMRC using the voluntary disclosure online service. This should be done within 30 days of the date of the letter. Once they have started the process, they will have 90 days to complete the disclosure and pay any tax due.  

HMRC may charge a penalty. If a penalty is charged, it will be calculated based on the person having made a prompted disclosure.  

The person can also use the online service to register for self assessment if the gross income from their trade continues to exceed £1,000. This means that they will have to complete a tax return.  

Importance of responding to the letter 

HMRC may check the person’s tax affairs if they do not respond, or if they fail to declare the correct amount of income or tax. Failure to act could mean that a higher penalty is charged.  

Two types of letter are being sent in order for HMRC to test different communication methods. In one of the letters, it is noted that if a person fails to act they could face a criminal investigation. In the same letter, information is provided on how the person may inform HMRC that they have committed tax fraud using the contractual disclosure facility (CDF). 

Using the CDF 

The CDF is only suitable for taxpayers who want to admit to tax fraud. By entering the CDF, the taxpayer will:  

• admit that their deliberate conduct has brought about a loss of tax;
• tell HMRC about all the tax losses brought about by their deliberate conduct;
• give as much detail as they can within 60 days of being offered the contract; and
• provide additional details, in the form of a report, following the 60-day period which includes a statement that they have given HMRC complete and accurate details of their deliberate conduct. 

In turn, HMRC will agree not to investigate bringing a criminal prosecution for the deliberate conduct the taxpayer admits to in the CDF contract. 

Further information 

Template letters: 

• Tell us about your income from the breeding and sale of animals 
• You may need to declare income from the breeding and sale of animals 

HMRC’s guidance on the trading allowance and on making a voluntary disclosure.