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Where Taxpayers and Advisers Meet

Let Property Campaign

armour
Posts:4
Joined:Sun Sep 12, 2021 12:41 pm
Let Property Campaign

Postby armour » Mon Sep 13, 2021 1:55 pm

Hi all,

A friend of mine has been renting out a flat since 2004 and has not declared any of the income to HMRC in all that time.

She wants to come clean and pay the accumulated income tax she owes by making a non-prompted disclosure using the Let Property Campaign system.

Having read the blurb ( https://letproperty.campaign.gov.uk/ ) it seems a relatively simple process. Does anyone have any experience of using this facility? If so, what are your impressions?

I have a small BTL portfolio myself and am used to preparing tax returns so I said I will help her and have a couple of questions to ask:

The flat was rented as 'furnished' from 2004 til May 2015, when it became an unfurnished let. Can the old 10% of rental income wear & tear allowance be applied over the first decade of the letting period?
If so, can replacement relief be claimed post mid 2015 when the flat became an 'unfurnished' let?

The lady in question has documentation detailing costs regarding an eviction which was necessary in 2006. This resulted in a large loss in FY 06-07 which I intend to 'carry forward'. I imagine the 06-07 loss will not be fully covered for at least the three subsequent years. This would be allowable if using the self assessment system, will it be allowable using the Let Property Campaign?

Overall, the lady has comprehensive documentation. I.E. Every P60 bar one, almost all the letting agent's invoices, tenancy agreements and notices, and most of the mortgage provider's statements of interest paid. Even for those statements of interest paid which are missing, letters exist which make it relatively simple to generate an accurate estimate of interest paid. Given this, and her commitment to "telling, helping and giving", I imagine that she will qualify for a penalty towards the lower end of that stipulated for unprompted, deliberate but not concealed disclosures.

https://www.gov.uk/government/publications/compliance-checks-penalties-for-failure-to-notify-ccfs11


As the penalty is to be self-selected and justified, I would say 30% across all years would be correct.

All thoughts, comments, observations and suggestions are welcome,

Chris.

Jholm
Posts:201
Joined:Mon Mar 11, 2019 4:22 pm

Re: Let Property Campaign

Postby Jholm » Wed Sep 15, 2021 4:26 pm

Sorry for delay responding.

It is a relatively simple process, once you have collated all the details needed to calculate the tax due for each year.

Make sure you use the HMRC interest and penalty calculator, calculating interest through to the date that payment is to be made.

HMRC seem to generally ask questions in writing but I have typically called them to provide the answers. They don't seem very good at accounting for unused PAs or instances where the rental profits straddle into higher rate bands. They seem to just look at the undisclosed profit amounts and apply 20/40/45% tax somewhat blindly.

I have claimed losses via LPC. Although technically, you just wouldn't make a disclosure for that year. Adjust the profit figure declared to account for any b/f losses.

Depending on the circumstances, I have typically pushed for 0% penalties and been successful around 50/50. You don't ask, you don't get! I still find it quite staggering that we are asked to pick a penalty rate, rather than HMRC apply one. We have compromised at 10% before also.

I would advise your client that it can be a bit of a lengthy process, subject to HMRC queries and acceptance of the 'offer'. I don't think I have ever had one that was fully done and dusted once submitted. Therefore, warn them that additional amounts could become payable, since the submission of the disclosure does not guarantee HMRC accept the amounts, penalty rates etc.

Hope that helps somewhat.

Jholm
Posts:201
Joined:Mon Mar 11, 2019 4:22 pm

Re: Let Property Campaign

Postby Jholm » Wed Sep 15, 2021 4:27 pm

Just to add and apologies if it's obvious but make sure you claim any allowances that were available in the earlier years, such as the old wear 'n' tear.

armour
Posts:4
Joined:Sun Sep 12, 2021 12:41 pm

Re: Let Property Campaign

Postby armour » Wed Sep 15, 2021 5:28 pm

Thanks for your response Jholm, your post seems quite encouraging.

My friend was aiming for an "Unprompted, Deliberate but not concealed" penalty (From HMRC website: this is is where you knew that you should have told us about a circumstance that affected your liability to tax within the relevant time limit, but you chose not to tell us).
It gives a penalty "range" of 20-70% of tax owed with a "failure to notify" of more than 3 years standing subject to a minimum of 30%. Given that she has lots of supporting documentation and wants the whole thing done with as quickly as possible, I would think a 30% penalty should be achievable. Do you really think she should go lower? perhaps to 20%?

No apologies necessary for stating what may be obvious but, since you mention it, I have a couple of questions re the Wear & Tear allowance:

Firstly, I've been led to believe that even though the 10% is calculated on "net" rent, If the landlord hasn't paid any of the council tax, utility or cable fees, the "net" rent,for W&T calculation purposes, is actually the rent paid by the tenant to the letting agent. Is this so?

Secondly, during the year she had to make the eviction, my friend lost 6 months rent when the tenant lived there but just didn't pay the rent. Given that that tenant caused more wear & tear than any other, it seems ironic that my friend should be limited to W&T calculated on ony 6 months' rental payments. Could it be argued that a full year's rent was actually due and that that should be the figure used to calculate that year's W&T allowance?

Thanks, Chris.

Jholm
Posts:201
Joined:Mon Mar 11, 2019 4:22 pm

Re: Let Property Campaign

Postby Jholm » Wed Sep 22, 2021 12:01 pm

I guess if you went under accruals basis but wrote off 6m of rent as bad debt???

My knowledge of W&T allowance isn't comprehensive since my tax career started after it was scrapped but I believe you are correct with the 10% of rents, not profit.


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