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Where Taxpayers and Advisers Meet

Undisclosed Lodger Income

David12345
Posts:3
Joined:Thu Jan 13, 2022 12:10 am
Undisclosed Lodger Income

Postby David12345 » Thu Jan 13, 2022 1:10 am

Hi There,

I have a friend who is somewhat vulnerable but is looking at making a voluntary disclosure under the Let Property Campaign.

He's a very small fish. Basically he let out a couple of rooms in a property he co-owned with a parent. A lot of the time he had one lodger and was fine under the rent a room allowance but there are certain periods where he has two and went over the rent a room allowance threshold. Part of the confusion was about halving the allowance as well as the rent which was shared with said parent. He's never touched a tax return and has always just been on PAYE, he was never prompted you see and in fairness to him the Rent a Room Scheme is an automatic entitlement, so until he got a second lodger and went over he wasn't even required to do a tax return.

This stretches back to the 2013/14 tax year and the most recent tax year it affected was 2019/20 - but most of the years in between he only had one lodger and so was under the rent a room allowance. He did have fairly serious mental health issues for the early part of this period, but things have improved for him a lot since.

He's done some fagpacket, guesstimatey calculations and the amount he owes isn't more than a few hundred for the entire period in question, relating only to two or three tax years. He hasn't added on any interest or penalties yet, so the actual sum he has to pay will be higher.

He wants to come clean but his difficulty is he has zero records, he even changed bank accounts so doesn't even have access to those records. All he has are rough dates when lodgers moved in and out and he can't even remember exactly what they paid each month in earlier periods (when they weren't underpaying or deciding to spend the rent on drugs instead, poor guy tells me into a situation with one lodger back in 2014 that was borderline "cuckooing").

The parent isn't helping (or maybe they are...) as their advice is to not do it (the parent is self employed as ahve to do a tax return anyway and have always reported their half correctly but not using the rent a room allowance as the parent never lived in the property). My friend is stressing as he wants to do the right thing and is too honest for his own good, but doesn't want to enter into a Kafkaesque world of forms and demand for proofs he doesn't have. Especially if the parent refuses to help (the parent should have records on rent coming in).

He's even called the helpline but couldn't get through without a reference number - kafkaesque at the start and it scared him off!

How likely is it that HMRC will demand proofs in such a small case? Is it worth him taking professional advice for the sum described above? How stiff are the penalties likely to be? Does such a situation even qualify for the Let Property Campaign? Is the parent right?

darthblingbling
Posts:497
Joined:Wed Aug 02, 2017 9:09 pm

Re: Undisclosed Lodger Income

Postby darthblingbling » Thu Jan 13, 2022 10:08 am

I'm sure the CIOT, a leading professional body for tax advisors, states that if the liability understated is less than £200 for a tax year then it would not be in HMRC's interest to pursue given their own admin costs. I'll try and dig this out.

Also unless he was deliberate in his actions I doubt he'd need to go all the way back to 2013/14. Likely just the last 6 tax years.

darthblingbling
Posts:497
Joined:Wed Aug 02, 2017 9:09 pm

Re: Undisclosed Lodger Income

Postby darthblingbling » Thu Jan 13, 2022 10:13 am

https://www.icaew.com/technical/tax/pcrt/2019/helpsheet-c-dealing-with-errors

'is the error trivial'.

David12345
Posts:3
Joined:Thu Jan 13, 2022 12:10 am

Re: Undisclosed Lodger Income

Postby David12345 » Thu Jan 13, 2022 11:21 am

Hmm thanks for that, does anyone know if the rent a room allowance can be applied retrospectively via a disclosure? As the figure of a few hundred is based on just taxing income beyond the allowance at 20% retrospectively.

darthblingbling
Posts:497
Joined:Wed Aug 02, 2017 9:09 pm

Re: Undisclosed Lodger Income

Postby darthblingbling » Thu Jan 13, 2022 4:21 pm

Should be fine.

David12345
Posts:3
Joined:Thu Jan 13, 2022 12:10 am

Re: Undisclosed Lodger Income

Postby David12345 » Thu Jan 13, 2022 6:35 pm

Yeah I figured he was worrying too much, thanks very much for all the advice!

I guess the best thing he can do if he's THAT worried is to bite the bullet and book out a day to get through to HMRC. At least then he'll know where he stands.

darthblingbling
Posts:497
Joined:Wed Aug 02, 2017 9:09 pm

Re: Undisclosed Lodger Income

Postby darthblingbling » Fri Jan 14, 2022 12:20 pm

I should qualify that the reliefs available will be those in force for that tax year. I'm aware that the relief was recently increased and you would need to look at the relief that was available in each tax year separately.


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