Omitted to include Income on 2003/2004 Self Assessment Tax Return

[Pip1209]

I completed and returned my 2003/2004 Self Assessment tax return in September 2004. However I omitted to include US Dollar income from the exercising of company stock options. I was led to believe that this income would not be taxed until I repatriated it to the U.K from an off-shore bank account. I have now been informed that this should have been included in my tax return. What should I do now? Is is possible to send a revised tax return before the deadline of 31st January'05? Is it likely that I will face penalties or even criminal prosecution (since it is a relatively large amount) due to this omission.

Any help or advice would be appreciated.

Many thanks

[jamesconstantine]

You have 12 months from filing date to make amendments to your return.

James Constantine
http://www.taxadviceuk.com

[Pip1209]

Thank you James for your reply. I assume that if I were to wait until the end of the 12 month period to make any amendments I would be charged interest on any tax owing from 31st Jan'05 until the date the amendment was received. Is this correct?

[Lambs]

Pallan, you don't need to re-submit your return, rather you need to make a "repair" to your return, which you can do up until 31st Jan. 2006, regardless of when it was filed. Under normal circumstances, the worst that would happen is that you would be charged interest on any underpayment, be it in terms of your balancing payment due 31st Jan. '05, or your subsequent payments on account, or potentially even your 2003/04 payments on account if you'd originally applied to reduce them. Surcharges could also be levied, but bear in mind that if you pay the correct amount of tax by the due date, then interest won't be in point, so why wait?

It sounds like you will need to submit some "Foreign Income" Supplementary pages, to make your repair.

I should warn you that it is possible that the Inland Revenue could try to say that your original return was made negligently, and penalise you accordingly. As a precautionary measure, when you advise them of the omission, make it clear that you were initially under the impression that it would be chargeable on remittance to the UK, so it was an 'honest mistake.' (I should add that it is very unusual for the Inland Revenue to adopt such a hard line approach, but why take the risk? As tax practitioners, we would make this point as a matter of course).

One last thing: although bearing in mind the current position with the dollar this is unlikely, you should be aware that foreign currency is a capital asset in its own right, and when it is "sold" for UK Sterling, it is a capital disposal subject to the Capital Gains Tax regime; if you make a loss, then be sure to claim it.

I should recommend that you speak to your accountant or tax adviser about the above points before taking any action: if there are substantial sums at stake as you suggest, I think it would be worth it.

[Pip1209]

Lambs - Many thanks for your comments and advice. I am meeting with a tax advisor next week. regards Pallan.