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Let Property Campaign - reasonable excuse

Let Property Campaign - reasonable excuse

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I have done a number of disclosures recently on rental income but wonder what constitutes reasonable excuse because if reasonable excuse is selected then the disclosure only has to go back to 12/13 (the DO2 won't let you go back further).

I had 2 clients last week on this.

One hadn't disclosed because the income was from Cyprus, it was only small and the client believed that as the property was abroad she didn't need to declare the income in the UK

Other client owned a rental property jointly with his spouse and thought his wife had disclosed all the income on her tax returns for last 6 years. His wife had declared her 50% share of the income on her tax returns but not the full 50%.

In the past I have had clients say (wrongly, of course) that they thought full mortgage repayments (capital & interest) were allowable and as this then created a loss there was nothing to disclose 

In both cases I advised that whilst the discloures were unprompted and not deliberate I did not believe HMRC would accept reasonable excuse so the disclosure went back to when the renting started (2010 in one case and 2009 in the other).

I didn't feel their excuses met with the criteria (although HMRC's definition of reasonable excuse doesn't, I believe, carry the force of law at present). However I wonder if I have been a bit harsh with the advice and whether I could have selected reasonable excuse and reduced the disclosure just to 2012/13 onwards ans waited for HMRCs response?

What would be the consequence of HMRC disputing reasonable excuse and would other posters maybe have gone for that option and waited to see what happens?

Thank you

Replies (7)

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By anneaccountant
09th Dec 2016 13:13

Sorry typo on OP. Should have read wife disclosed 50% of the rental income on her SATR but not the full 100% (so the husbands share of the income had not been declared anywhere by anyone!)

Apologies.

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By SteveHa
09th Dec 2016 13:38

In the examples you quote, you are describing ignorance of the law, which is never accepted to be reasonable excuse. I agree with you.

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Replying to SteveHa:
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By tonycourt
09th Dec 2016 14:33

Actually, as a general observation rather than a comment on the OP; ignorance of the law where it involves particularly complex issues and you have relied on an expert to handle compliance issues can be a reasonable excuse.

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By WhichTyler
09th Dec 2016 13:42

"...the client believed that as the property was abroad..."
"...thought his wife had disclosed all the income..."
"...thought full mortgage repayments (capital & interest) were allowable..."

Why did they have these thoughts & beliefs?

I would suggest that they would have a reasonable excuse if they could show they had made efforts to get it right but had been misled (their accountant told them that as the property was abroad... their wife told them she had accounted for all the income... HMRCs guidance was so ambiguous that it was easy to conclude that capital repayments were allowed...)

Not looking, not asking or guessing is not a reasonable excuse as they have not taken reasonable care to get it right

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By feelingthestrain
09th Dec 2016 14:03

I would just look at the careless mistake avenue personally, the disclosure will probably then sail through and everyone can sleep at night.

My concern would be that if you say reasonable excuse and then you can only submit the detail for the most recent years that then, if HMRC come back asking why, it's going to look even more suspect than it did in the first place e.g. did you deliberately select reasonable excuse to avoid those years?

Of course the client would love it if only the most recent couple of years were caught but, to use the excuse that "our reasonable excuse for using reasonable excuse is that the accountant told us we should" doesn't sound too great!

They should take the hit and move forward as the property letting campaign is actually a good, and pretty fair, way of sorting these types of issues (not often I say anything too positive about current HMRC policies!)

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By anneaccountant
09th Dec 2016 15:44

Thank you for the feedback.

In each of the cases mentioned the clients came to me to help with the disclosure; one had seen an IFA about financial planning, one had been chatting to a friend and the other had read something in the press. So they told me, anyway.

I had to ask them why they hadn't disclosed the income before to be able to complete the forms and these were the various reasons given.

They thought they had reasonable excuses but I felt they would struggle if challenged.

As reasonable excuse doesn't appear to have been fully defined yet by Tribunal or case law and as HMRC's definition of reasonable excuse is generally considered to be rather narrow I just wondered what might happen if we accepted the clients' excuses as reasonable and just reported income from 12/13 onwards and waited to see if there was a challenge by HMRC?

What would be the worst that could happen?

On a personal level I agree the Let Property Campaign is a good thing but as the term "reasonable" is a vague and subjective one I was interested to hear how far one could push things .. within reason!!

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By CMED
10th Dec 2016 15:32

I have done four or five declarations under the let property campaign.

I agonised about the reasonable excuse entry for the first two. Both were accepted without any of the questions I was anticipating. I am now of the opinion that if you fill in the form and put 'Just take the money' in the reasonable excuse box your calculation of the tax due will be accepted.

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