A recent announcement from HMRC has stated its intention to mop up any undeclared tax owed by landlords of residential rental properties. The activity, called the Let Property Campaign, aims to encourage individuals who let property to double check their records and disclose any previously undeclared or under-declared income from it.
Those who haven’t made a disclosure, and who are believed to have outstanding tax payments, will be sent a letter inviting them to make a ‘prompted’ disclosure.
What to do if you receive a letter
Receipt of a Let Property Campaign letter should be taken seriously, and a response made within 30 days of the date of the letter.
The first thing to do is to check your records to see if there is any income that, for whatever reason, has gone undeclared. It may be a good idea to have a financial advisor or tax specialist do this for you, as not only will it be a fresh pair of eyes, they’re qualified to spot errors that you may not be aware of.
Secondly, you should fill out the Digital Disclosure Service (DDS) form on the government website, with details of your intention to disclose. At this stage, no details of your income or the tax you believe you owe are required.
Upon receipt of this, HMRC will issue you with a Disclosure Reference Number (DRN). You must then make your disclosure within 90 days and, when you send it, make your payment as well.
What happens if you ignore the letter
Ignoring the Let Property Campaign letter could have some serious consequences. Formal action will be taken to recover the outstanding tax, and you may face penalties of up to 100% of the unpaid tax. In more extreme cases, a criminal investigation may commence.
Calculating what you owe
Gather together all the information you require to make the calculation and work out the total rental income that is undeclared. Any income you have disclosed on previous tax returns need not be included, as you will have already paid tax on it.
You’ll also need to calculate any allowable expenses that you have incurred, excluding those you have already claimed for on previous tax returns. Deduct this from your income to ascertain your taxable profit. You can then use HMRC’s tax calculator to work out what you owe. Remember, interest and penalties may need to be factored in.
It’s advisable to seek help from a professional when calculating your tax. Tax specialists can check your figures, agree the correct position with HMRC and negotiate a suitable settlement on your behalf.
What to do if you can’t afford the required payment
Ordinarily, taxpayers are expected to pay what’s owed in a lump sum. If, however, you cannot afford this, HMRC may agree to accept scheduled payments over a set period. You should contact the Let Property Campaign helpline to discuss your circumstances and request a more flexible payment option.
For further advice, contact the Let Property Campaign helpline on 0300 123 0998.