What happens if I didn't know I needed to do a return?
I have quite a few clients that own properties on behalf of whom I produce their self-assessment returns, however occasionally a piece of work comes up that is slightly different to the usual work that I get involved in as an accountant working with small businesses and individuals. On this occasion, I used HMRC's Let Property Campaign to obtain a better result for one of my clients. Keep reading to find out how.
Background
When she first started work, Joanne bought a small flat and lived there for several years. Gradually she outgrew the place and despite altering the layout of the flat to suit her lifestyle she decided to purchase a bigger property to accommodate her and her growing family. Instead of selling, she decided to rent out her existing flat. Joanne managed the property herself, so she wasn’t aware of the need for landlords to complete tax returns and pay tax on the rental income. When she came to sell the flat, she realised that she had to pay capital gains tax on the property so she approached me to ask how she should declare the capital gains tax. Through this conversation, it came to light that she hadn’t been completing the required returns for several years.
What was the best way to help?
Even for an honest mistake such as this, HMRC still expect taxpayers to declare any outstanding and will add on penalties and interest for late payments and late returns. Luckily in this case, Joanne was up to date with all of her taxes except those due on her rental income so rather than completing many years of outstanding tax returns and ending up with large penalties, HMRC allowed declaration under the Let Property Campaign . This campaign is similar to an amnesty for landlords, allowing you to make a single submission to HMRC covering all the outstanding years without having to send information on income that has already been fully taxed. In completing the submissions in this manner under the campaign, the penalties tend to be lower than if you were to go back and submit full self-assessment returns for each of the years in question.
What did we do?
The process was not without its challenges. Going back more than 6 years meant that not all of the records were available, but Joanne managed to track down enough of the records to allow us to piece together reliable estimates to fill in the missing pieces of the puzzle.
The evolution of property tax is such that there have been some gradual changes over the last few years and each individual year had to be calculated using the prevailing rules for the year in question. Unfortunately, we were too late to be able to claim some expenses that Joanne would have been entitled to.
The form had to be completed online and unlike the self-assessment return, the tax calculation wasn’t provided so a fiddly tax calculation had to be completed for each year. The Let Property Campaign also requires you to propose how much you should pay in penalties on any outstanding tax. HMRC can either accept your offer or challenge it and require you to pay a higher penalty.
What was the outcome?
Due to the high rates of interest in the earlier years, very little profit was made on the rent that had been outstanding for the longest time. Using HMRC guidelines, we proposed the penalties at 30% of the outstanding tax due, which is significantly less than the penalties that would have been charged separately on each outstanding self-assessment return. Having made the proposal and full payment to HMRC, they quickly accepted the offer. The amount payable was significantly less that Joanne had expected to pay.
Despite a favourable outcome in this instance, Joanne would have been much better off putting her self-assessment forms in in the usual manner. Had she done this, we would have been able to claim additional reliefs for her that it was too late to claim; penalties would have been avoided altogether.
If you think you are in this situation, please don’t leave it any longer. Click the button below to arrange a Discovery Call with me and let’s get your tax sorted now. The penalties are significantly higher when HMRC comes knocking at your door asking for any unpaid tax so make sure you contact them first. The tax bill might not be as high as you are expecting, and the peace of mind will be worth every penny!
Image by LEEROY Agency from Pixabay
