Tax avoidance is always a big topic of conversation for HM Revenue & Customs. Each and every year they reveal different schemes to crack down on offenders so that they can recoup hundreds of thousands of pounds in unpaid taxes. In a society ruled by electronic gadgets and social media sites, it is getting harder and harder for tax avoiders to stay “under the radar”. This particular Government campaign is targeting unpaid income tax on undisclosed property rental income. So if you are a landlord or you know someone who is, then this article is a must read for you.
What is the Let Property Campaign?
The Let Property Campaign was launched by HMRC back in the Autumn of 2013. It is a campaign that encourages landlords to come forward and notify HMRC of all previously undisclosed income which gives rise to a tax liability, and then pay the liability due.
You can see what constitutes rental income in our article “Rental Income Explained”.
HMRC powers
As time goes on HMRC are getting more and more powers to delve into your personal financial affairs and determine whether you have undeclared income.
- They are checking the land registry for people owning more than one property;
- They are scowling social media sites for posts about tenants;
- They are working together with banks and letting agents across the country to find out who is receiving rental income.
It is no longer a case of IF they find you; it is now a case of WHEN they find you.
HMRC Letters
As a result of the information gathered from the sources mentioned above, HMRC have been writing to people they believe to be landlords, and are asking them to take part in the Let Property Campaign. Once you receive your letter you have 30 days to contact HMRC and either tell them they are mistaken, or notify them that you are indeed receiving rental income.
Once you have notified them that you are a landlord, you have 3 months to declare to them your rental income and expenses (and hence your undeclared liability to income tax).
How far back do I have to go?
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If you are registered for self assessment but under declared your income even though you took reasonable care. |
4 years |
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If you are registered for self assessment but under declared your income because you were careless. |
6 years |
|
If you deliberately under declared your income. |
20 years |
Penalties and interest
All late payments of income tax are subject to interest at 3% pa, and there are online calculators that can help you work out how much this is in your case.
The penalties applied to overdue tax liabilities under the Let Property Campaign are subject to different levels of severity depending on the circumstances, and whether you notified HMRC before or after you received the letter mentioned previously.
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|
Before Letter |
After Letter |
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Careless under disclosure of income on your tax return |
No penalty |
15 – 30% |
|
Deliberately under disclosure of income on your tax return |
20% |
35 – 70% |
|
You received rental income but didn’t tell HMRC that you needed to make a return due to being careless. |
10% |
20 – 30% |
|
You received rental income but deliberately didn’t tell HMRC that you needed to make a return. |
20% |
35 – 70% |
Why volunteer the information to HMRC?
As you can see from the table above, HMRC are encouraging people to be proactive. If you go to them before they come to you then your maximum penalty will be 20% of the tax due. However, if you wait until they come to you then you could be looking at penalties of up to 70% (and can be even more in very severe cases).
Conclusion
If you receive rental income and don’t currently declare it then seek financial advice RIGHT NOW. Do not wait for HMRC to find you or else the consequences will be much more severe.
