HMRC has announced that they are writing to landlords that they suspect have not declared income from property or capital gains from the sale of property. The letters are called ‘nudge’ or ‘one to many’ letters and encourage the recipients to
register for the Let Property Campaign (LPC) to report any unpaid tax, interest and the appropriate penalty.
HMRC has gathered data through legal gateways from other government departments and third parties, which it compares to its tax records. The information is filtered so that the more serious cases are investigated by an HMRC officer. Cases where it is unclear whether tax is owed are selected for a nudge letter. The information may relate to a UK or foreign property.
What is it?
The LPC was launched so that individuals that solely or jointly own residential property could report any unpaid tax. HMRC promotes its
digital disclosure service (DDS) so people can make a voluntary disclosure online to bring their tax affairs up to date.
You can either call HMRC to register or apply online for the LPC. You are then sent a payment reference number (PRN) so that you can pay the tax, interest and penalty when you make the disclosure. HMRC automatically allows participants 90 days to make the disclosure and pay. People that require longer to pay should still submit their disclosure within the 90 days and then ask HMRC for an arrangement to pay the tax. In some cases, HMRC also allows participants more time to make the disclosure.
HMRC asks that people use the LPC rather than write to them, as they have a dedicated team to deal with the disclosures. This means that the matter can be resolved a lot quicker and more efficiently. Anyone who rented out a residential property can use the LPC but it is not available to companies or trusts.
A tax agent can register you for the LPC and deal with the disclosure process on your behalf.
What should you do?
If you have received a letter from HMRC, you must respond even if you believe that your tax affairs are up to date. HMRC makes it clear that anyone that ignores the letter will face a compliance check or investigation to check whether their affairs are in order.
It is sensible to seek
professional tax advice to check your position before you respond to HMRC. While there may be reasons why no tax is owed, it is important to check the historical tax position. It is recommended that you look at the history of your ownership of the property and when it was first let. This includes any periods that the property was vacant and the costs associated with letting the property so that the profits arising can be computed. If there is missing information, it may be possible to estimate the expenditure so that the correct amount of tax is paid. Professional advisers can also advise you on any other allowable deductions that can be offset against the rental income.
A common question is how far back can HMRC go to recover unpaid tax. This depends on the reason why the tax was not paid on time and whether the asset or property is in the UK or overseas. The UK tax code is very complex and the time limits that apply depend on the type of behaviour, the property’s location and whether tax returns were filed in the years in question.
In summary, there are
three types of behaviour: genuine mistakes; a failure to take reasonable care or; deliberately not declaring the income. In some cases, HMRC can go back up to 20 years to recover the tax owed. The type of behaviour also affects whether there is a penalty to pay on the tax paid late. Ensure that the penalty is kept to a minimum by cooperating with HMRC because, in the most serious cases, the penalty can be between 50% and 100% of the tax owed.
How can Moore help?
We specialise in assisting clients to bring their tax affairs up to date and have a proven track record of successfully representing clients wishing to make a voluntary disclosure to HMRC. We can assist with all aspects of the disclosure and communicate with HMRC on your behalf. We will not only ensure that the tax owed is kept to a minimum as well as any penalty that may be due on the tax paid late.
We know how to get this right first time to minimise the risk of HMRC having follow-up questions. Understanding how disruptive this can be for you,
we work with you to ensure that the best route is taken to resolve the issue as quickly as possible.