I have a client who has come to me after being told they should have been declaring that they own a rental property. This has opened up a bit of a can of worms and the client is obviously not happy.
There is no income on the rental property only losses dating back to 2004/05 - HMRC have closed the window for any returns prior to 2009/10 so after the initial good news that I only have to prepare 3 years back dated returns I have had to tell her that the losses can only be claimed from 2009/10 - which is not too bad as the property is not currently making a profit either so we got over that one.
She finally dug out all her P60's and each year she has a higher tax code than expected - she didn't have an explanation so I rang HMRC and they said she had written to them to say she was paying into a personal pension scheme so for 11/12 for example she pays £250 per month which equates to £3,600 gross per month so they have made her tax code 7475 + 3600 = 11075. The problem is that she is not a 40% tax payer and therefore the tax calculations show she owes tax for each year due to the inflated tax codes!
I can't see an easy way to deal with this - when I send in these tax returns then HMRC will start chasing her for the outstanding tax - I have tried to explain but she does not understand how she can owe tax as she is PAYE. May be a silly question but shouldn't HMRC have spotted this sooner? The pension contributions just increase the basic rate band don't they so she still has to pay 20% on the earnings?
Anyone have any ideas? Am I missing something?
Replies (6)
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the losses can only be claimed from 2009/10
Are you sure about this?
I would argue that just because the losses weren't declared to HMRC doesn't mean they are not allowable.
Infact in a recent case with HMRC about undeclared rental income dating back to 2004/05, we provided details of all losses dating back until then and advised HMRC we would be using the total losses carried forward moving forward - this was accepted.
May not be important in this case if the property is unlikely to ever generate profits, but defo worth keeping in mind...?
With regards your query, look at ESC A19
ESCA19
If the client has given HMRC the correct information and HMRC have issued an incorrect tax code then I think you would have a good case under ESCA19. Have you a copy of the client's letter to HMRC? Also check if client paying net or gross contributions? Were contributions deducted through payroll?
Annuity ?
Were the contributions definitely paid to a personal pension - or gross to an older style retirement annuity?