If you owe tax from a rental and are thinking of using the Let Property Campaign then speak with us before you speak with HMRC!
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This includes you if you:
- rent out a single property
- rent out more than one property
- are a specialist landlord – where you may rent out to students or workforces
- are a residential property landlord
- rent out a room in your main where the income exceeds the Rent a Room Scheme threshold
- live overseas and rent out a property in the UK
- live in the UK and rent a property overseas
- rent out a holiday home (even if you or your family use it yourself)
Many don’t inform HMRC if they have been making extra money from property. Since 2008 and the closure of the incentives to own buy to lets, rental profits have been slim. Many think that if there is no profit from renting out a property then there is no requirement to inform HMRC. This is simply not the case! It is a requirement that the person renting must be registered for self-assessment. Any rental profit (large or small) or loss, must be entered onto the form. Whilst the landlord can only use the campaign if they have undeclared rental income, they must declare any other income from self-employment.
You Cannot Use the Campaign If You Are
- a company then you cannot use this scheme.
- an individual renting out a commercial property then you cannot use this scheme.
HMRC have an online LPC questionnaire that you can fill in to determine whether you need to disclose any income tax on your property.
HMRC Let Property Campaign Deadline
Once you have made a declaration to HMRC either directly or through an advisor, have 90 days grace to pay the amount you owe. This is called an ‘Unprompted Disclosure’. The three months start ticking once HMRC has written back with a reference number. You are basically volunteering that you have undeclared tax to pay.
HMRC have stated that if it gets to the point where they have to write to a landlord about property income and the landlord has not made any disclosure voluntarily, then this will be regarded as prompted and the landlord will lose out on any favourable penalty conditions. If however, they do make a full admission by the date mentioned in the letter then the let property campaign penalty may be reduced from between 35% and 75%
How Can HMRC Tell If I Owe Tax From A Rental
HMRC have more power than you think. They can force letting agents and local authorities to hand over details. This includes private property landlords and residential property landlords like you! Once they have this information they may write to the landlord inviting them to take part in the LPC. On rare occasions, HMRC will extend the three-month deadline. For example where the landlord needs specialised tax advisor help and where calculations are complicated. Clear communication from a tax advisor like Kinsella is the key to this, which is why you shouldn’t attempt to do this without help. It is on the nature of HMRC to come back with questions. However, with our vast experience and through the ex-HMRC professionals we employ, we can provide a clear route to the lowest penalties.
Disclosing Unpaid Tax On Rental Income
HMRC sole reason for existing is to collect all taxes due especially from property rentals. They are only interested in receiving an LPC disclosure if this is the case and you have un-paid property tax. Letting out residential property is not always profitable so Kinsella will always provide a full P&L (Profit and Loss) to HMRC. If there are losses then, of course, these can be set against any future profits. If an individual is not already registered for self-assessment then they must not assume that HMRC will do this for them just because they have disclosed through the LPC. We would always recommend that an individual is registered. This type of landlord disclosure is the only route an individual has to declare unpaid income from a rented property and any tax due.
Let Property Campaign Penalties
HMRC have a sliding scale of penalties depending on how helpful you are in declaring the tax that you owe. Ultimately the penalty can be 100% of the tax so you need to act now if you believe you owe any tax under this scheme. In fact, the penalty can be as high as 200% if there is offshore income to declare! It is up to you to prove ‘reasonable excuse’ if you fail to pay the tax after your January 31st deadline.
Onus of Proof
According to HMRC the onus is on the individual to prove that they took every ‘reasonable’ care to avoid any inaccuracy. In reality, during a tribunal the onus shifts to HMRC who must prove that there was a mistake, either deliberate or careless. The standard of proof escalates with the seriousness of the accusation which means that in order to prove that the act was deliberate rather than careless HMRC really must push the boat out to be successful in their pursuance.
Was Your Mistake Deliberate?
If we assume that you made a genuine error then HMRC does have a publication called ‘Your Guide to Making a Disclosure’. It clearly states: “We may not accept that someone in business for many years, earning significant amounts without telling HMRC, has not done this deliberately”. The bottom line is that with cases like this HMRC are not stupid and you must not assume that they will not bother to pursue if you simply tell them you made a mistake. Clearly, if you have been a property landlord for many years then you clearly know what you are doing!
The LPC is a useful device for those who owe money due to undeclared rental income. However, it is not a ‘get out of jail free’ card. Once you have embarked down the road of using it to declare untaxed income HMRC need to make a decision. Was this a genuine error? wor was it deliberate. Clearly the action for deliberately diddling the revenue can be swift and harsh. If there is a chance you may be able to persuade the revenue that your actions were not deliberate then it makes sense that every avenue is explored, as the result will be a lower charge or a suspension altogether. Similarly, every way of suspended a penalty must also be explored thoroughly – even if they have not.
Care must be taken not to indict one’s self, even though the onus flips during a tribunal to HMRC proving that the act was not carelessness but deliberate. It is clearly an area which must be navigated carefully as the potential for getting it wrong can be very serious indeed.
A Last Word Of Advice
HMRC clearly explains that there are many reasons why landlords may misunderstand the rules, and may not pay the right amount of tax. These include:
- Moving in together
- Inheriting a property
- Property bought as an investment
- Care home
- Jointly owned investment property
- Property bought for a family member at university
- Property let while the owner is away of Armed Forces active duty
- Tied accommodation – above or pub or shop for example
With such a myriad of potential problems, it makes sense to get proper representation. Speak to us before you speak to the revenue. The penalties can be harsh but with the right people acting for you, the severity can be mitigated!