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Let Property Campaign

Can I use the LPC for this particular client circumstance?

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Hello. Just been approached by a client referral with 30+ years of undisclosed rental income, plus a couple of property sales! I 'm making inital enquiries of the 'new client' - sounds like about 5 different flats bought with mortgages over that period, and a couple of sales. It's possible that CGT covered by AE's of husband and wife, and perhaps not much in the way of rental profits, but I don't really know yet. There seems no valid excuse for non-declaration. They have both just received letters from HMRC Compliance, which are headed "Undeclared Income from Property" and are from "Campaigns and Projects", but are unsigned by any HMRC Officer. The letters say "We are writing to you because you may get income from property.....If you have not told us about all of your income from property, you must declare this by completing a Self Assessment tax return." This is not therefore an 'enquiry' letter. I'm wondering if I can/should use the LPC to make this disclosure for the last 20 years. It is not now unprompted, but the letter seems rather benign, and the LPC guidance on gov.uk also seems a bit vague on this. I don't really want to complete 20 years of SA Returns! Any thoughts/advice would be appreciated. (I will be leaving this one for next month, but just want to give some initial holding advice, as they are quite stressed, albeit they have brought this upon themselves.)  

 

 

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By Paul Crowley
13th Jan 2021 21:12

Based on prior dealings with such clients, I would pass without all money up front.
If people knowingly evade tax for such time, you will be last on their chosen payment list.

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By Wanderer
14th Jan 2021 03:51

Yes, you can use LPC, dependent on types of property rented.

Although you say you don't want to complete x years of tax returns you effectively have to do this in order to work out the tax rates & calculate the liabilities. You have to complete / amend tax returns for the last couple of years even if you use the LPC.

It is now prompted so penalties will be higher. Keep within all LPC timescales to mitigate penalties as far as possible.

Don't overlook that you will need to make a Money Laundering Report unless you hold a relevant qualification.

Whilst accepting what Paul says my experience is that this sort of work can be quite interesting / rewarding with some very grateful clients at the end. It can however be quite a trawl to extract all relevant information out of the clients unless they have been highly organised in keeping records. Consider obtaining payments on account as it can often take many months to resolve.

Remember that you will be doubling up certain aspects of the work as you will need to register / disclose H + W separately. Also if they haven't disclosed this rental income over such a long period in my experience some other non disclosure crawls out of the woodwork as work progresses which you will also have to deal with. You will likely need to be in a position to discuss tax planning as sometimes the clients will need to sell one of the properties and / or remortgage to settle the liabilities.

Do it all digitally but be aware that you often have to repeat the disclosures manually when the LPC office raises any queries.

Although you mention 'benign' & 'this is not an enquiry letter' it is, in fact, much more serious. Make the clients aware of this in no uncertain terms but don't judge, just handle it professionally. There may be a mountain to climb but it is climbable.

Sounds like a big one to cut your teeth on if you have no previous LPC experience. Good luck!

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Replying to Wanderer:
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By gouldltd
14th Jan 2021 10:43

Thank you - that is so helpful, and just what I wanted to know.
I have dealt with quite a few LPC's before, and these 'tax-payers' have already asked how much to pay up front, and I will be billing as I go. I do realise I have to do all the work, just didn't want to have to fill out/submit SA Returns on top.
The only one I've done where HMRC found them first was for a much bigger liability, and it was a formal enquiry from the start, so dealing directly with a named Inspector. It went back almost 20 years, with 2 significant property sales (tax of £100K's), but the Inspector chose to only go back 4 years, and reduced the penalty rate at my first request! (There were mitigating circumstances, but even the client felt he got off lightly.) It does seem that HMRC are particularly lenient with a lot of undeclared rental income cases, hence why I was wondering whether there was another way of dealing with it - with LPC, there is no option but to declare all years and apply the appropriate rate of penalty, whereas a formal enquiry seems to offer the possibility of a lesser number of years. Anyway, I'm not in the business of assisting them to avoid tax, but I felt I should see if there was an alternative approach.

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Replying to gouldltd:
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By gouldltd
10th Mar 2021 20:49

Just following up on this, in case anyone is interested. Clients have spent hours on the 'phone trying to get UTR's issued, following the online applications. In doing the rounds, they have spoken to a named individual from Senior Registrations, who has now issued the UTR's (they had got 'lost' in the system, despite having reference numbers for the original submission requests??). They have also now both received identical letters from HMRC, requesting Tax Returns for only the last 3 years! (They advised over the 'phone that they had bought the first rental property in 1989, and the HMRC officer made notes during the telephone call.)
Therefore, I feel we are now justified in only completing these 3 years (which includes the only sale of a property in 19/20), rather than using the LPC to submit the last 20 years. Nevertheless, it is frustrating to be advising a client initially that they must declare 20 years, only for HMRC to then just ask for 3!? I am beginning to feel that in such circumstances, making direct contact with HMRC is the thing to do (rather than just go straight for LPC), as this may yield a more lenient approach, resulting in less work and less arrears of tax.....(I can't help feeling slightly irritated that HMRC are happy to ignore the chance of a much heftier tax haul, plus associated interest+penalties, but it doesn't feel right to do 20 years, when they have specifically only asked for 3, despite having been given the basic facts.)

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Replying to gouldltd:
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By Wanderer
11th Mar 2021 05:26

gouldltd wrote:

Therefore, I feel we are now justified in only completing these 3 years (which includes the only sale of a property in 19/20), rather than using the LPC to submit the last 20 years.

Not convinced this conclusion is justified.
Under the LPC:-
Quote:
If we have sent you a return for any tax year from 2016 to 2017 onwards that’s still outstanding, you must complete each return and not include those years in your disclosure.
This indicates LPC disclosure is required for years that don't include an outstanding SA return.
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Replying to Wanderer:
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By gouldltd
11th Mar 2021 14:42

I take your point. However, from the clients' point of view, they have twice spoken to HMRC now, following receipt of the original letter. On both occasions, they stated that they acquired the first rental property in 1989. The second call was following a call of several hours, being passed from pillar to post over getting the UTR's issued, which ended with a named individual who took notes, and even called back the wife that evening to speak directly. Within less than a week, they both received letters asking them to complete 17/18, 18/19 and 19/20 Tax Returns online. These Returns were not previously o/s, so have been prompted by their latest call. The letters are marked (bottom left) SA316_FTN, (which I assume must mean failure to notify). They make no mention of a requirement to disclose any earlier years. Bearing in mind my previous experience of HMRC deliberately choosing to request only the last 4 years' rental income, when they were fully aware of a non-disclousre arising for many years prior to that, and Justin Bryant's comments as the last post to my original question, I will find it very difficult to persuade these new clients that they must still declare the previous 17 years' rental income when as far as they are concerned they have told HMRC the main facts twice, and have now received a positive instruction to complete only 3 years' details. How can HMRC be so obtuse if they expect otherwise....?!

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Replying to gouldltd:
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By Tax Dragon
11th Mar 2021 17:07

Bearing in mind your previous experience dates from 20 years ago, I wonder how relevant it is to today's enforcement regime.

Maybe your job is to advise the clients of the risk of significantly higher costs if they opt not to use the LPC for the earlier years? That's between you and the clients.

Of course, something that is not a matter for discussing with the clients is Wanderer's AML point.

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Replying to Tax Dragon:
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By gouldltd
11th Mar 2021 17:24

Thank you for your interest.
The previous experience I am referring to was only from last year - I think you may have mis-interpreted some of my earlier content.
My (small) firm is regd with the ACCA, and I am aware of my ML responsibilities.
I am still somewhat undecided on my plan of action, but really struggling with the element of doubt introduced by HMRC's latest letters, especially when viewed from the clients' perspective - it is most unhelpful for me as an agent.

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Replying to gouldltd:
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By Tax Dragon
11th Mar 2021 17:53

I did misinterpret. Apologies.

Don't let it be your decision not to use LPC. That's what I meant (and I'm still not sure I've said it right). If it's you makes the decision and there end up being bigger penalties, you won't be in a good place.

(Does that make sense? Flipes what's happened to my English today?!)

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Replying to Tax Dragon:
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By gouldltd
11th Mar 2021 18:52

Yes, thank you. I am thinking along those lines myself.

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Replying to gouldltd:
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By gouldltd
12th Mar 2021 11:14

Epilogue:
Now spoken to a very helpful man on the LPC helpline. He confirmed that the Returns will have been issued by the SA dept, and will have been requested for all years back to 17/18, just because that is as far back as they can go at this point in time. That is the only logic for their issue - SA dept will not have collaborated with the LPC or any other relevant dept. in any way during this process.
The original letters (refs beginning CFS-) will have been issued as a result of information held by HMRC indicating undeclared rental income, and this should be declared using the LPC, for all years not covered by the now issued Returns, (as appropriate, according to the circumstances).
I 'complained' that the 2nd letters, (SA316_FTN) made no mention of the need to declare the undisclosed income for earlier years, and the clients could be forgiven for thinking they therefore didn't need to, especially having told HMRC the relevant details over the 'phone, twice. He agreed, and even went so far as to make a specific note of the letter code I quoted, so that he could pass on my feedback, as he acknowledged that the SA316_FTN should really contain a line in it to make clear that earlier years need also to be declared.
My way forward is now clear to me....
No doubt some readers will already 'know' all this, but I just wanted to be able to explain convincingly to the prospective new clients, exactly why it will be adviseable for them to declare the additional 17 years, despite HMRC's latest letter suggesting that perhaps they were off the hook. I am now somewhat more enlightened as to the continuing un-joined-up nature of HMRC's systems. I don't imagine for a minute they will amend SA316_FTN, but it was nice to be listened to and agreed with!

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Replying to gouldltd:
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By Wanderer
12th Mar 2021 11:30

Thanks for coming back.

Just to emphasize one point you've made, the LPC office are one of the few HMRC departments who are experienced, able & willing to talk and helpful.

One problem I'd envisage, as the returns have been issued under the 'FTN' letter, it may well be that they are going down the route of FTN penalties which would likely be higher than under the LPC route.

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Replying to gouldltd:
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By Tax Dragon
12th Mar 2021 11:48

Very good of you to update us. The forum could do with more members like you.

If I may use part of your comment to make a completely unrelated point (to other forum users, not aimed at you.... so yes, this is, technically, now trolling)...

gouldltd wrote:

...HMRC's latest letter suggesting that perhaps they were off the hook.

That's inferred, 'read in', rather than actually stated in the letter. It is of course incredibly easy to read things in (and actually using implication rather than stating directly what we mean is something we all do all the time even without realising, so we are all used to 'reading between the lines' and picking up on such implications. But it can lead to real issues - such as you have had here. And in a forum like this, misunderstanding abounds. (And that's even before scope for additional misinterpretation such as I demonstrated in my first post on this thread! And people not knowing the significance of what they don't tell us in the first place [that happens a lot in here]. And and and....)

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By Justin Bryant
14th Jan 2021 09:06

I always find it interesting to compare & contrast how LPC tax evaders are treated by HMRC (barely a slap on the wrist, if that) with loan charge taxpayers (who did perfectly legal EBT tax planning and yet many have resorted to suicide due to HMRC's relentless persecution there - as mentioned again by KG recently).

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