HMRC have been running a campaign since 2013 with the purpose of creating a path for individuals who have been generating income from renting properties, but have not declared this income to HMRC (Income must be declared whether you believe there would be tax payable or not), to bring their tax affairs up to date.
There are many reasons why those with property income have not brought their accounting/tax up to date: From feeling like they have left if too late and are now afraid of being punished by HMRC if they were to come forward, to not knowing they had to declare the income as they believed they were not making any profits; There are also those who simply buried their head in the sand hoping the whole mess would go away.
What is the HMRC Property Let Campaign?
HMRC are making a concerted effort, through their property let campaign, to find those with undeclared property income and have them bring their affairs up to date; and HMRC will decide upon any penalties depending on whether HMRC had to make first contact or not; HMRC refer to this as “Prompted” and “Unprompted” disclosures.
What penalties may I incur if I have property income not yet declared?
The table below (information taken from the HMRC’s disclosure form) outlays the above with an illustration of the penalties that may be applied by HMRC.
| Position | HMRC CONTACTED YOU FIRST | YOU CONTACTED HMRC FIRST |
| You sent HMRC a return showing less tax payable than the correct amount because you had been careless | Penalty = 15% of the tax due | No penalty at all. |
| You were in receipt of letting income and did not tell HMRC that you needed to make a return, but you weren’t deliberately trying to keep the information from HMRC | Penalty = 20% of the tax due.
or 10% if you advise HMRC within 12 months of when the tax first became unpaid. |
Penalty = 10% of the tax due.
or 0% if you advise HMRC within 12 months of when the tax first became unpaid. |
| You deliberately failed to tell HMRC you had started letting out a property and needed to make a return | Penalty = 35% of the tax due. | Penalty = 20% of the tax due. |
| You deliberately sent HMRC a return showing less tax payable than the correct amount. | Penalty = 35% of the tax due. | Penalty = 20% of the tax due. |
Penalties applicable to offshore income and gains are proportionately higher dependant on the Offshore Category. You may have to pay penalties of up to 100% (200% for offshore related income) of the tax due if you tried to conceal the extent of the undeclared tax. If this may apply to you please
What If I have no taxable profits?
If there are no taxable profits then penalties will likely be avoided, taxable profits are be worked out by preparing a profit and loss account.
How do I work out my taxable profit?
Taxable profit is worked out by taking gross income (the amount received from tenants) and deducting allowable expenditure (see below) and allowances to arrive at a taxable profit (or loss). However, only some of the money you have spent on your properties may be allowed when working out your profits.
How do I know what expenditure is allowed?
There are two types of expenditure for property accounting purposes: revenue expenditure, which is allowable to reduce profits; and Capital expenditure, which is not an allowable charge against profits – and instead is treated as part of the cost of the property (this is important when selling a property as there may be a Capital Gains Tax liability).
It is important to distinguish between these two types of expenditure; the total amount of money spent on a property may result in a loss; but, only some of that expenditure may be allowed resulting in taxable profits that have to be declared to HMRC.
How do I contact HMRC?
HMRC can be contacted on: 0300 123 0998
What Happens after I contact HMRC?
HMRC will take a note of your details and will send you a letter shortly after advising that you have contacted them and that you have three months from the date of the letter to get your accounts up to date and tax paid.
Do I need to pay any tax due by three months after I contact HMRC?
The general rule of the campaign is that any tax due is to be paid by the end of three months after making initial contact with HMRC. However, it may be possible to negotiate a time to pay arrangement if more than three months is required.
We have over two decades experience preparing property accounts and taxation and we apply this experience and knowledge to work with our clients to minimise any tax liabilities. We have also had great success over the years negotiating any “offers” or “extra to time to pay” arrangements with HMRC and can be a valuable asset during these processes.
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