Check on SA and non-declared property income

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Hi all,

A client did not inform us about his two buy-to-let properties. He has had those propeerties for about 12 years now and never also declared those to his previous accountants. The HMRC in one of their random checks has now raised a check on their tax return (2016/17) and have asked the client if he has other properties other than the one he lives in. The answer as I told him is yes but what could be the potential issues in this inquiry now? Using the Let a property project to voluntarily disclose? how far back could he or the HMRC go?

He make anual profits of about £3500 on each of the properties.

I need help on how to sort this out for him

Its crazy but I need very proactive responses

 

Replies (13)

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By SteveHa
10th Dec 2018 15:18

LPC is not available if HMRC have opened an enquiry.

I suggest co-operating with HMRC (they will already have evidence of letting), and warn your client of potential penalties, depending on the behaviour that led to the omission.

If it was purely careless, then HMRC are restricted to 6 years, EXCEPT, where there was a S7 FTN (TMA 1970 S36(1A)(b)), and so he could be caught for the whole lot.

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By Tim Vane
10th Dec 2018 15:19

Are you sure he never declared them to his previous accountants? How can you be sure that he didn't leave them because they told him to declare them? How "random" was the HMRC check.

Frankly I'm not sure why you are asking the question. HMRC do not just ask this sort of thing without having some sort of idea of the answer. It's hardly going to be a voluntary disclosure now - you are looking at a prompted disclosure.

Probably best to use the LPC as the simplest method of full disclosure. Don't forget to consider your SAR reporting obligations if your client gets cold feet.

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Replying to Tim Vane:
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By bridyn
10th Dec 2018 19:34

Thank you for your response. I am sure he did not declare these to his former accountants because we did go through his previous tax returns before taking him on.

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By Duggimon
10th Dec 2018 15:29

Given that, in my experience, most taxpayers are honest and forthright in their affairs, it's quite telling what proportion of these "random" checks alight on those who have undeclared income.

I am quite sure HMRC are already aware to some extent that your client owes tax and I would suggest the very least they will now be paying is the full amount of tax, plus interest.

A full and frank disclosure at this point may limit their bill to just that and have the penalties suspended or waived, HMRC will no doubt welcome the savings in avoiding a full investigation, so long as the full disclosure meets what they expect for the withheld tax.

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By lesley.barnes
10th Dec 2018 16:26

This won't be as random as you think - HMRC has software that can check if someone has more than one property registered with land registry. He needs to declare everything if he doesn't HMRC will know when the properties were registered to him at land registry.

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By Wanderer
10th Dec 2018 16:33

As others have said unlikely to be random.
Some sources which HMRC cross check regularly:-
a) Land Registry entries
b) Letting agent's records
c) Benefits claims

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By Adam12345
10th Dec 2018 16:54

You’re looking at tax geared penalties of between 35% to 70% on the lost revenue in my opinion. If they co-operate HMRC will hopefully only charge 35%.

You would be very lucky to convince HMRC that this omission is careless, especially if the client was filing SATRs every year. I and probably HMRC, will see this as deliberate evasion, and therefore can go back 20 years.

As for ‘random’, I agree with a lot of the above. We have seen a dramatic increase in new clients with undeclared property income for numerous years. HMRC are probably getting new data from somewhere such as the Deposit Protection Scheme providers or similar.

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Replying to Adam12345:
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By hiu612
12th Dec 2018 11:15

I agree. The main reason being that careless behaviour could limit HMRC to 6 years whereas deliberate lets them have 20 years. So they need to make this deliberate to ensure they get all 12 years of undeclared earnings. Once deliberate and prompted, penalties start at 35%. Also worth remembering how much higher interest rates were 12 years ago and how big the interest charges on these things can get.

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By Rammstein1
11th Dec 2018 08:44

I had a similar case a few years ago. The client had a couple of let properties he never told us about and HMRC picked up on it when he replaced his main house and it flagged up on their system.

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By djn24
12th Dec 2018 10:17

It can't be a voluntary disclosure now that HMRC are already looking at the tax return.
They probably already know that they have this rental income.
Penalties start at 35%.

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Replying to djn24:
By SteveHa
12th Dec 2018 10:38

We don't know whether or not HMRC have opened an enquiry, or have simply invited the taxpayer to come clean before they do (hence my referring specifically to enquiry in my original reply).

LPC is available if HMRC have not opened a enquiry.

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By pauljohnston
12th Dec 2018 11:26

As another has mentioned the interest on the unpaid tax is going to be very large if HMRC go back 20 years.

I think that you should give your client the real bad news and tell him that it may be 20 years and if it is the tax is £xx, the penalty will be say 50% and the interest will be £xx. He needs to know know so that the finger is not pointed at you by him for not telling me and so he can consider how to raise the cash.

You may consider that an enquiry specialist should be used

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By C Graham
12th Dec 2018 16:05

odd that he knows the profit (therefore must be keeping proper accounts on the BTL properties) but then does nothing with the numbers?

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