I have a client who lets a shop/flat property. Last Autumn she went abroad and I advised HMRC and I know they have registered the tenant on the scheme. The tenant is a poor payer but has made some payments to my client.
Needless to say my client has not received the required paperwork from the tenant so has no evidence of tax paid. So who is responsible for the missing tax? Can we assume that the payments received are 80% or do we assume they are 100%?
Ultimately the tenancy finished last week - I went with the landlord who was visiting the UK to re-possess the property and would normally make a judgement on the rent that will actually be paid and what is not likely to come in. Obviously the deposit will be retained but wont cover the whole balance.
The question (at least in my mind) is important not because my client doesn't want to pay tax; but as it determines the total rent paid and the amount assessable/ with an appropriate bad debt adjustment.
Obviously if HMRC chase the tax due (which their guidance says they will) and my client's calculation is based on the net amount there will be more income in future years but as my client will be entitled to PA for 2014/15 but not after that they would be penalised if HMRC collect tax in a later year which reduces the bad debt
Or am I over complicating something?