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Rental income?

I have a new client, Ltd Co (hubby & wife) and have been informed by other folk that they have buy to let properties, several of them. when I mentioned in passing they said yes but as they don't do personal tax returns, they have NEVER declared them. One can of worms now opended!

As a sole practioner with AAT they act as my MLRO, I have asked but not had a reply as yet. Any suggestions?

Should I report on HMRC website? Or just request ITR for this year & sit tight????

PLease note their previous accountant has now been struck off ICAEW register !!!

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Get everything up to date

You don't need to "inform" HMRC on their website.

Presumably these properties are held personally by the husband and wife and not through the limited company. Presumably you also have UTRs for them both. Complete Tax Returns for the outstanding years in question, either on your software or on copies obtained from HMRC. Submit them and thereby bring your clients' tax affairs up to date.

Maybe there are no profits to declare as it is possible that mortgage interest and other expenses exceed rental income. There will therefore be no penalties for late submission of Tax Returns.

Regarding Money Laundering, whether or not you need to report will depend on what your clients tell you and what you believe. It is highly likely that they genuinely believed that, as they made no profits on their rental income, there was no need to declare. It's amazing how many taxpayers think that that is the case. In which case there is no dishonesty on their part and, as long as they submit their outstanding Returns, then no MLR would be due. No doubt David Winch can give you a much more detailed reply on that issue than me. But I think that I have got the gist of it.

I have had several cases going back over the years of almost exactly the same scenario and, having completed all Returns, that was the end of the matter.

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Rental property?

Thank you Steve, I was hoping this may be the case, but as I haven't had this situation before was unsure how to proceed, as you say they may well have not made a rental profit, I haven't been brave enough yet to ask when the properties were bought. To report or not report is always a dilema!

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Get the information

Decide if there has been deception as opposed to ignorance.

Report or not.

Get returns filed ASAP and negotiate penalties if any.

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Property income rental compliance checks and failing to submit t

I work specifaclly in this niche area and have a lot of current clients who have not submitted property income information to HMRC for years or are subject to property income compliance checks out of the specialist HMRC property income unit in Northampton.

Currently, best working practise is not to submit back tax returns but to contact the tax inspector and agree a opening date for drafting rental income schedules, and if necessary, capital gains tax computations.

Some of these non-disclosures go back 20 years  - one or two involve pre-1982 buy to lets and several involve the non-resident landlord scheme.

It is obvious from discussing cases with HMRC that they are collating data from forms P85 and P86, the Land Registry, housing benefit, electoral rolls and letting agents to identify targets.

Make sure you put together robust schedules of dates to prove private residence relief, date of first letting, dates let etc and grab financial records from third parties like letting agents before they are shredded as they are six years or more old.

Many compliance checks are only opened on the cusp of the six years putting the clients at a disadvantage if they have not retained paperwork.

Tax inspectors are mainly concerned about proving mortgage interest as this is likely to be the largest expense against rent.

As advised above - deal with the issue ASAP to stop interest accruing on any potential outstanding tax and negotiate to mitigate penalties.

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Yarley. why not to file tax returns?

Can I ask why you say that "best practice is not to file past tax returns"? If there has been a rental loss, it would only be the the taxpayer's advantage. If there is tax to pay, why would HMRC allow this?

 I am now acting for a couple of clients who have received identical letters from the same person in local compliance who wants a meeting ASAP. I am preparing tax comps back to 2005/6, so that when the meeting occurs, we will have accounts showing rental losses, which will hopefully close the enquiry. Do you disagree with this, and why? Andrew

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Avoiding returns

I've had a few of these - mainly referred by IFAs who discover the omission when doing a best advice review and send them to me. I always go for a letter (with a grovelling apology) to HMRC plus income and expenditure schedules and either paying the tax or asking for losses carried forward to be agreed but don't complete tax returns unless requested to do so by HMRC. So far they have only asked for the last year before declaration to be completed and thus saved the client fees. The saving of fees is, really, the only advantage. I've also managed to completely avoid penalties where tax was due, so far. Better touch some wood now!

Cathy

[email protected]

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I don't make the rules...

 

>>>>> Yarley. why not to file tax returns?

Can I ask why you say that "best practice is not to file past tax returns"? If there has been a rental loss, it would only be the the taxpayer's advantage. If there is tax to pay, why would HMRC allow this?

 I am now acting for a couple of clients who have received identical letters from the same person in local compliance who wants a meeting ASAP. I am preparing tax comps back to 2005/6, so that when the meeting occurs, we will have accounts showing rental losses, which will hopefully close the enquiry. Do you disagree with this, and why? Andrew <<<<<<<

I don't make the rules ask HMRC why they have a certain policy

I have never seen a property income compliance letter requesting a meeting and we have resolved all our cases without any face-to-faces with HMRC. To have two clients receiving the same letter seems bad luck. Perhaps you'd like to give a heads up by identifying the inspector and the office?

We are collating this data to assist in our response to compliance checks.

 

 

 

 

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to yardley
Sorry I misunderstood. I though you implied it was your policy not to back-file tax returns. I didn't realise this was revenue policy.

I am happy to provide you details of inspector etc but not on a public forum. If you care to PM me your email address, I'll scan and send the letters.

Incidentally, it wasn't two clients, it was 5 who got the letter. Although I didn't take on the other 3 because they weren't co-operating.

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