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You should have declared this Spanish net income on your annual self assessment tax return. However, there is no cause for panic as, under the Double Taxation Convention between the UK and Spain, which precludes the same income stream being taxed in both jurisdictions, any tax paid in Spain is allowed as a tax credit against any UK liability. Does that help?
Yes, you should each declare this income though from what you say HMRC will probably tell you not to bother in future. The net sum to be declared will have to be 50/50.
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