How much is that doggie in the window? HMRC may want to know

Animal breeders have been a target of HMRC for many years, with it setting up a taskforce back in October 2015 to gather information on individuals that were suspected of incorrectly declaring their income on dog breeding and the sale of puppies.

It was widely reported in 2019 that more than £5m had been raised by the taskforce. HMRC has not released any further information on its compliance activities in this area since then, which is surprising given the increased demand for dogs during the coronavirus pandemic.

However, recent HMRC correspondence suggests that it is focusing compliance activities on dog breeders once again.

The HMRC department at the centre of its campaigns targeting inaccurate R&D claims and undeclared offshore income is writing to animal breeders, telling them that HMRC has information that indicates that not all the income from their breeding activities has been declared to HMRC. The ‘nudge’, or ‘one to many’, letters encourage animal breeders to make a voluntary disclosure to HMRC to correct their tax position or face the risk of a tax enquiry and higher penalties.

The sources that HMRC obtains information from in this area are wide ranging and include pet insurers, the RSPCA, other government bodies and online trading sites, as well as members of the public and open-source information on social media. HMRC’s investigators will check the information they have from these sources regarding the income received by animal breeders against the tax returns submitted to HMRC. If the tax returns do not reflect the information in HMRC’s possession, a nudge letter will be issued to the breeder, or HMRC will start an enquiry into their tax affairs. 

During the coronavirus pandemic there was a surge in the price of pets because of an increase in demand during lockdown. HMRC may hold information that the increased income generated during this period has not been fully declared in the tax returns of the animal breeders being targeted, although it is possible that HMRC’s information could be inaccurate in some instances.

We would not expect HMRC to target someone that has sold the unwanted litter of a family pet. However, if you are trading as an animal breeder, or even carrying on what you believe to be a hobby, you may receive a letter in the post from HMRC. Whilst you may consider that these activities amount to no more than a hobby, HMRC may take a different view. 

Considering the potential profits that were generated by breeders during the pandemic, it is no surprise that HMRC is seeking out further tax revenues. 

So, if a disclosure is not made to HMRC in a timely manner, or isn’t correct and complete, non-compliant taxpayers could find themselves with their tails between their legs.