Undeclared rental income


Postby heathland on Tue Jan 09, 2007 10:29 am

I have a few rental properties I have held for a few years and after some bad advice did not declare these on myself and my wife's tax return. I was wondering what I should do now - the rental income is significant over the last five years even taking into account expenses and interest ? Should I contact revenue and declare them - what kind of penalties/interest are involved. I was also a 40% tax payer for some of the time so the amount would be a lot and I do not know how I could pay the possible tax bill.

What are the chances the Revenue find out if I carry on not declaring them or perhaps under declare them as I am not sure how much tax is payable and what . What do they tend to do in these cases as I know of many people that have rental income and do not declare it - to be honest was not even aware that I had to pay tax on it
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Postby Peter D on Tue Jan 09, 2007 10:45 am

You are winding us up.!!!!! Do you like showering with other men in a confined space. Was the advice given whilst waiting for a bus. ?? It's been a long day but that "Made I Laugh" Regards Peter
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Postby Andy Wood on Tue Jan 09, 2007 10:53 am

Heathland,

I would hope that the advice on here would always be to disclose this to Revenue!

First of all, you need to get an exact picture of what you owe. Now, this might not be as bad as it first seems as there are a large number of expenses which you can deduct against rental income (have a good look around this website) For example any mortgage interest on the property can be deducted from the rent received. In many circumstances, this can make a large dent in the taxable amount.

After youÂ’ve calculated how much tax you believe is due, penalties and interest are likely to be added to tax owed. The Revenue can use their discretion to mitigate penalties. Voluntary disclosure is one factor which will count in your favour.

Depending on the amounts at stake, you may wish to consider bending the ear of an adviser (you can find a list on here I believe) who has experience in negotiating settlements.

Hope this helps (and good luck)

Cheers
Andy

andrewtimothywood@yahoo.co.uk
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Postby Peter D on Tue Jan 09, 2007 11:26 am

Please Please go and find a qualified professional account and declare all the facts to him/her. Use the 'Find a Professional on this forum ans have all your facts sorted. Regards Peter
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Postby cta on Tue Jan 09, 2007 11:32 am

Agree with all that has been said. Starting point for penalties is 100% of the tax due plus interest with mitigation for, as Andy says, voluntary disclosure, together with co-operation and how serious HMRC consider the non-disclosure.
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Postby heathland on Tue Jan 09, 2007 12:52 pm

Yes sorry genuine did not realise as had to pay interest and lots of repairs to get the properties going which was way more than rental.

I am very concerned by these penalties as I can understand interest and small penalties but 100% sounds ridiculous for genuine mistake . If I voluntarily declare the problem what is the realistic penalty ?
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Postby King_Maker on Tue Jan 09, 2007 3:43 pm

I strongly suggest you speak to a professional before contacting HMRC - unless you are confident in your own abilities for negotiation, presentation and tax law.

As stated, the penalties can be (up to) 100% of the tax due plus interest from the date(s) the tax should have been paid. Only the former can be mitigated. But since both are tax geared, it is vital to get the tax due as low as possible.

What is the basis of your "genuine mistake"?

As you are no doubt aware, ignorance of the law is no defence.

I had a person come to me with over 10 years of undeclared rental income and property sales - she had been "shopped" by a disgruntled tenant.
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Postby wamstax on Tue Jan 09, 2007 5:02 pm

Heathland,
I realise that you have only mentioned rental properties here but you have to be realistic and consider that if you have "unwittingly" understated your rental income on the possible basis that you hadn't actually made any profit - mistakenly treating capital repayments on loans as having to be taken into account before you made a profit - then any open minded inspector of taxes might consider that you had unwittingly understated other sources of income. If you were self employed or a company director then you could expect HMRC to be reviewing more than the simple rental matters. This would include how you were able to finance the properties and how much this left you of your declared income to meet your private & personal needs

You do need to get a professional to -in the first instance prepare rental business income and expense statements so that you can get an idea of the likely duties unpaid as a result of your mistake(s). You also need to speak to someone about the further potential problems e.g. financing your settlement of the unpaid duties , interest and mitigated penalties and accurately completing some inevitable paperwork that will be required by HMRC before they agree to settle with you.

As to penalties you can achieve quite high "discounts" from the statutory maximum of 100%.

Firstly you can get up to 20% off for going to them and making a full disclosure of your past irregularities

Then you can get up to 40% off for full "cooperation". This means that you have to be fully cooperating and quickly providing all documentation and information that HMRC need to consider your understatements and to bring matters to a conclusion


Lastly is the bit that you cannot do too much about - but a professional can put matters in the best light for you - and that is the seriousness of your mistakes.

You can basically get up to a further 40% off for what is called "seriousness" and relates to the size and gravity of your offence(s). In other words the bigger the size of the settlement - and a professional can always within the law limit the damage you are seen to have done -; the longer the period you have been "fiddling" and the more serious the nature of your offence the less you will get of a discount for this aspect. Very minor cases of neglect might get as high as 35% going down to possibly 15% in a local office case with exceptional cases dealt with by Specialist offices sometimes going below that for such as fraud.

You may have to realise assets to pay HMRC their debt too however all this would be discussed with your professional

I hope this helps and feel free to refer to my website where you might find some pointers to what you need to be considering at this time. Don't leave it as it can only get worse and if you get figures calculated then you know where you stand finacially.

regards,
bill@wamstaxltd.com
see website at
http://www.wamstaxltd.com
regards and hope this helps
bill@wamstaxltd.com
http://www.wamstaxltd.com
Operates Nationally with competitive costs
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Postby wamstax on Tue Jan 09, 2007 5:35 pm

By the way remember that your wife is equally implicated in the understatements but that could be a possible way of mitigating the ultimate bill if she wasn't a 40% payer.

No doubt there are lots of embellishements that will evolve as your enquiry takes off
regards
bill@wamstaxltd.com
http://www.wamstaxltd.com
regards and hope this helps
bill@wamstaxltd.com
http://www.wamstaxltd.com
Operates Nationally with competitive costs
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