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New client has not disclosed significant rental income - what are tax penalties with full disclosure

New client has advised that they have been earning about £20K per year for the last 4 years renting out 4 rooms in their private property under the assumption that the rent a room scheme exemption limit is per room and so covered the income. As far as I am aware it is per residence so there is a significant tax liability.

Assuming full voluntary disclosure, what are the likely tax penalties?

Thank you

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05th Jan 2012 14:06

Probably not more than 10%

On the facts given, it sounds to be careless (failure to take reasonable care) rather than deliberate, so the maximum penalty would be 30% of the tax (70% if deliberate).

If the disclosure is unprompted (made before HMRC becomes aware of the omission), the minimum penalty is 10% for full co-operation, unless disclosure is made within 12 months of the tax being payable, which might apply to the last 2 years, in which case the penalty can be reduced to nil.

Even when a penalty is imposed for failure to take reasonable care, HMRC has the discretion to suspend it for a specified period of good behaviour. See CH83151.

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07th Jan 2012 12:45

Probably none

I would go for suspension in these circumstances.

Virtual Tax Support for accountants: www.rossmartin.co.uk

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