We have been calculating the tax liability on interest received by flat management companies at the applicable corporation tax rates, and submitting CT returns to HMRC.
We have now identified that the income, which has arisen on funds due to the management companies, which are owned by the lessees of the said companies, paid under the terms of the leases should presumably have been taxed at the Trust rate and a Trust tax return submitted.
We have researched this matter and found many comments regarding whether the funds are received under the terms of LTA87/S42, which we consider they are, but has anybody had experience of raising this matter with HMRC and what their response has been? Clearly, further to additional tax liabilities and interest thereon, do HMRC seek penalties, and also penalties for late submission of trust tax returns? How far back do they seek to go? This would escalate the liability enormously.
Driven mad by bureacracy
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Tax Bulletin issue 48
Have a look at Tax Bulletin 48 (Aug 2000).
http://www.hmrc.gov.uk/bulletins/tb48.pdf
The section 'Leaseholder owners of property' will help you decide whether, according to the terms of the leases, LTA 1987 applies.
The section headed "What trustees should do" is useful.
But has anyone notified several years late, as the questioner asks, & what was the Revenue's response regarding failure to notify chargeability, penalties, etc?
Trust returns
I was acting for a number of flat management companies when the Revenue announced its change of view on this issue i.e. that certain funds were de facto trusts and therefore a trust return required - this was about 9 years ago? It arose from the changes to schedule A. From memory, we simply reviewed our clients and if appropriate filed trust returns from then on, on the basis of guidance issue by Revenue at the time.
I would be concerned in your case that you have only come upon this point recently. It was moderately well publicised at the time - at least one letting agent raised it with me from their own professional publications and it is now as you say covered fairly exhaustively. If you have been submitting incorrect returns, then this may be a professional indemnity issue. Not only will the corporation tax returns be incorrect - although not in terms of loss of tax - but there will be a failure to notify in respect of the trust returns which should have been made.
Penalties would presumably follow the normal rules.