New (non resident) client not filed in 20 years

New (non resident) client not filed in 20 years

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A new client has not been resident in the UK for the past 25 years or so, but has been renting out his UK property ever since, and also has some UK bank interest.

A SA return has never been filed, and they haven't registered for the NRL scheme, thus have received rent gross.

I've calculated the tax for the past 6 years, and it appears that any liability is covered by the Personal Allowance (he is a UK citizen) and tax withheld on interest, so nothing is due. The client now wants to get everything up-to-date, and I'm not sure which is the best way forward.

Should I just register him for SA, and file the past 6 years (they are struggling to find paperwork for earlier periods), or would he need to go all the way back to the beginning of SA?

Alternatively, would it be better to enter the "Let Property Campaign"? Is it really necessary if no tax is at stake?

(Going forward, we will apply for gross status on the NRL scheme (NRL1i), or (if refused) will arrange for him to be paid rent net, and file a new return each year to get the tax back.)

What penalties are likely to be due? Presumably only the Failure-to-Notify penalty, which is a percentage of tax due, so maybe zero? Or is there anything else?

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By Wanderer
11th Feb 2016 05:28

Why are you concerned

about past tax returns if all covered by the PA?

The person who paid your client the rent may have some problems as they have piad gross. Note when you attempt to register your cllient under the NRL scheme you will have to give the payers details & reference.

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Replying to matthewleitch:
By aiwalters
11th Feb 2016 19:14

Many thanks....
Many thanks for your comments.

Wanderer wrote:

Why are you concerned about past tax returns if all covered by the PA?


The taxpayer is resident in X-land. The situation appears to be that he also has a Swiss bank account, showing his residence as being in the UK. (The account was opened 30 years ago when he was UK resident, and it was never updated). The bank has told him that unless he can obtain confirmation from HMRC that he is non-resident, they will provide HMRC with details of the account. Whilst the Swiss income is of course not taxable in the UK, this is likely to open up a discovery, and the property income will anyway need to be declared. Thus, my client wishes to "jump before he is pushed", as it were.

nogammonsinanundoubledgame wrote:

Presumably he does not have a UK letting agent, as such an agent would, in the absence of an NRLS registration, have been deducting the tax at source.

Absent a UK agent the tenant stands in the shoes of a hypothetical UK agent and adopts any resulting NRLS responsibilities including deduction and remittance of tax at source as necessary, and the tenant registering as agent regardless of whether the landlord does.  Quite probably the worst possible outcome for all concerned, unless perhaps the tenant is a friend or relation.

How is the property effectively managed from overseas?  What happens when the roof leaks or  the tenant falls into arrears?  Usually in these cases there is a UK contact who acts informally as an aid to the landlord if not officially as "letting agent".  It may be beneficial if such a person were themselves to register and take on that official burden.


There have been quite a few tenants over the period. There is no official agent, although a relative is on call to fix leaking roofs etc. This relative has agreed to become the "agent" going forwards, in we can't get gross status.

Portia Nina Levin wrote:

In the case set out in the OP, tax has been deducted at source. The landlord has chosen not to register in order to receive rents gross, and in consequence of the tax deduction does not have a tax liability.

There is no obligation for anybody in those circumstances to notify chargeability. Consequently, there has been no failure to notify chargeability.

Register to receive rents gross going forward, and deal with matters properly going forward, which from the sound of it will result in a reduction in tax.


No tax has been deducted at source from the rental income. Only from the bank interest.
Portia Nina Levin wrote:

You only need to bother going back to previous years if (a) HMRC ask, or (b) you want to get the tax back for earlier years (4 years max).


Per R oao Andrew Higgs v CRC, we may actually be able to get the tax back from the beginning. (There is no time limit for claiming a SA refund)
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By nogammonsinanundoubledgame
11th Feb 2016 06:22

Yes it is a concern

Firstly, PA is not an automatic relief to a non-resident, even if entitled.  It is provided by an annual claim (contrast UK resident, automatic).  It has not been claimed and as I understand it he can only go back 4 years, not 6, to claim it although I have not checked that last bit and am happy to be overridden.  The PA legislation was overhauled several years ago and it may have been automatic before then.

Without that irritating distinction (from UK residents) he would have had no statutory responsibility to notify chargeability although NRLS would still be a looming problem.

Secondly, if he registers either for SA or for NRLS now, both processes require a declaration of date of commencement. An attempt to limit the scope of returns by (say) lying and knowingly entering a date more recent than actual, where that gives rise to a loss of tax to the exchequer, would be fraudulent.  There is a strong temptation to do that when you are quite certain that there is no loss of tax and the forms require disclosure that goes beyond statutory notification requirements, but I don't think that can be justified here.

Presumably he does not have a UK letting agent, as such an agent would, in the absence of an NRLS registration, have been deducting the tax at source.

Absent a UK agent the tenant stands in the shoes of a hypothetical UK agent and adopts any resulting NRLS responsibilities including deduction and remittance of tax at source as necessary, and the tenant registering as agent regardless of whether the landlord does.  Quite probably the worst possible outcome for all concerned, unless perhaps the tenant is a friend or relation.

How is the property effectively managed from overseas?  What happens when the roof leaks or  the tenant falls into arrears?  Usually in these cases there is a UK contact who acts informally as an aid to the landlord if not officially as "letting agent".  It may be beneficial if such a person were themselves to register and take on that official burden.

I can understand why an unscrupulous accountant might advise the landlord to go away and do nothing.  Or make the property vacant for a period and then start a-fresh in a new tax year on the up and up.  Not right of course, and exposed to MLR and all sorts of other disciplinaries, but I can understand the temptation.  Hopefully he is not resident in one of those tax haven jurisdictions where penalties go up to 200%, but if as you say there is no tax ....

With kind regards

Clint Westwood

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By ireallyshouldknowthisbut
11th Feb 2016 09:56

.

I would get the client to register for SA1 for 2014/15 and enter 6th April 2014 as rent starting.  If an unrepresented tax payer makes a mistake before you are appointed, well, tax is rather confusing after all. The world wont end. 

When you file the first return disclose on the white space what happened in the previous 20. Ie clients income covered by allowance, no liability would have arisen if it had been done properly at the time, so client (wrongly) assumed no need to file.  But will be a good boy from now on. 

You will almost certainly get that in well before HMRC spot the date on the SA1 and cross reference to their data base and even think about doing anything about it. They wont of course read the information in the white space, but if you put the same in a letter they just might. 

Cowboy stuff works in these sorts of scenarios, but do explain what HMRC COULD do, if so minded. 

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Replying to tom123:
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By bernard michael
11th Feb 2016 10:30

Not sure this is wise!!

ireallyshouldknowthisbut wrote:

I would get the client to register for SA1 for 2014/15 and enter 6th April 2014 as rent starting.  If an unrepresented tax payer makes a mistake before you are appointed, well, tax is rather confusing after all. The world wont end. 

When you file the first return disclose on the white space what happened in the previous 20. Ie clients income covered by allowance, no liability would have arisen if it had been done properly at the time, so client (wrongly) assumed no need to file.  But will be a good boy from now on. 

You will almost certainly get that in well before HMRC spot the date on the SA1 and cross reference to their data base and even think about doing anything about it. They wont of course read the information in the white space, but if you put the same in a letter they just might. 

Cowboy stuff works in these sorts of scenarios, but do explain what HMRC COULD do, if so minded. 

 

Can you professionally advise the client to do this? 

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By nogammonsinanundoubledgame
11th Feb 2016 11:07

It doesn't get around the NRLS problem, even if pursued that way.

We had a similar case last year, but not quite as bad.  This client had no NRLS registration, no UK agent, had been receiving rents direct from tenant without tax deducted at source, but HAD been filing UK SA tax returns annually, each year claiming PA which covered the rents and showing no liability.

He approached us to act as agent (for tax, not as letting agent).  I advised him of the NRLS procedure, and (thankfully) never heard from him again.

With kind regards

Clint Westwood.

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By ireallyshouldknowthisbut
11th Feb 2016 11:18

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@Bernard, it depends how you see things.

I would see thing that the client doesn't owe anything, but due to the precise wording of various legislation ends up with a liability which is rather perverse, and my method would get him back in the system without too much of a fuss. 

You could of course see it the other way, that he is too late to claim the reliefs and he has a tax bill. Id say that was unduly harsh myself and am of course imposing an opinion of what I think the tax ought to be as opposed to what the law says it is which is a difficult place to defend or occupy.

I am not saying its right, only that its a practical solution to an otherwise very awkward and rather perverse situation.

If he is then filing returns, he can then tick the right box to apply for the NRL scheme.

In terms of speaking to the client you would need to be careful and say something like "had you already filled in the SA1 with the date and come to me in that situation, then I would do this, however you are coming to me like this, so I would have to write to HMRC and say X"

Who do we work for again?  The tax payer or HMRC?

 

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Portia profile image
By Portia Nina Levin
11th Feb 2016 11:35

There are a lot of misconceptions going on here

Personal allowances will be available. Whether by voluntary disclosure or otherwise, the ONLY mechanism that HMRC have to collect the past tax is a discovery assessment. If a discovery assessment is raised, you can make any claims that you would have made had you been self-assessing in time.

And a tenant only has an obligation to deduct tax from rents under the NRLS after HMRC have issued them with a notice telling them that they are a prescribed person (reg. 3(1)).

The landlord only has an obligation to do anything if they have a tax liability.

In the case set out in the OP, tax has been deducted at source. The landlord has chosen not to register in order to receive rents gross, and in consequence of the tax deduction does not have a tax liability.

There is no obligation for anybody in those circumstances to notify chargeability. Consequently, there has been no failure to notify chargeability.

Register to receive rents gross going forward, and deal with matters properly going forward, which from the sound of it will result in a reduction in tax.

You only need to bother going back to previous years if (a) HMRC ask, or (b) you want to get the tax back for earlier years (4 years max).

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By Martin B
11th Feb 2016 12:56

New (non resident) client not filed in 20 years

For future refrence.

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By nogammonsinanundoubledgame
11th Feb 2016 14:43

Thanks

Happy to be corrected.

I had concluded that a personal allowance requires a claim, by reason of the wording of sections 35 and 56 ITA 2007.

From s.35(1): "An individual WHO MAKES A CLAIM is entitled to a personal allowance of ..."

From s.56(1): "This section applies to an individual WHO CLAIMS ... (a) an allowance under Chapter 2 ..."

(My emphasis in caps, and similar provisions apply to the aged).

Of passing interest to me is that this draws no distinction from UK residents.  Don't know where I ever got that notion from.

What I had overlooked, and thank you for the reminder, is the time limit extension provided by s.43(2) TMA 1970.  It now seems to me that a sideways loss relief claim may be available to reduce a discovery assessment if otherwise out of time.  Good to know.

Anyway, I now wonder whether those who routinely claim that there is no obligation to notify chargeability under s.7, on the grounds that there would be no liability after deducting personal allowance which is available on a claim but which has not (yet) been claimed, are correct.  Best not go there, methinks

With kind regards

Clint Westwood.

 

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By Justin Bryant
11th Feb 2016 18:14
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Portia profile image
By Portia Nina Levin
11th Feb 2016 18:19

Only when you do not understand Justin.

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By Justin Bryant
11th Feb 2016 19:11

Yes, indeed

It looks like you have been getting lessons on landlord taxation from your friend Rigsby.

The requirement to operate the tax deduction at source on rents paid direct to non-resident landlords by tenants of the property not managed by an agent is only inapplicable where the rent per annum is £5,200 or less. This is specifically provided for in Reg 3(5) SI 1995/2902.

http://www.legislation.gov.uk/ukpga/2007/3/section/971

http://www.legislation.gov.uk/uksi/1995/2902/regulation/3/made

http://www.hmrc.gov.uk/manuals/intmanual/intm370030.htm

Thus, it's only if the rent payable by the tenant of the property not managed by an agent is below the scheme threshold that no tax needs to be deducted at source but UK income tax will nevertheless be due on this income.

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Portia profile image
By Portia Nina Levin
11th Feb 2016 19:26

Higgs will not work in these circumstances. I have explained this to someone on here before.

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Replying to meadowsaw227:
By aiwalters
11th Feb 2016 20:54

Why not?

Portia Nina Levin wrote:
Higgs will not work in these circumstances. I have explained this to someone on here before.

I assume you mean your comment at https://www.accountingweb.co.uk/anyanswers/question/higgs#comment-817969.
Even if you're right, then by applying for SA, with a start date of 19 years ago, HMRC may well issue notice to deliver the returns.

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Portia profile image
By Portia Nina Levin
12th Feb 2016 10:20

Well. I am sure you know best.

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