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Property purchase information HMRC

Is this information appropriate to pass to HMRC

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I'm currently handling a self assessment inquiry for a client.  The background is that HMRC opened a self assessment check into a client who I prepare company accounts for.  At this stage the client disclosed to me that they had a rental property they've never informed me of.  I obviously gave them a dressing down and telling off etc.  Client believed that as they weren't making money on it they didn't need to declare it, I pointed out the stupidity of not telling your tax adviser about this.  At that point we informed HMRC of the existence of this property and that we intended to make a disclosure and settle any liabilities if there are any.

My actual query relates to two pieces of information HMRC requested after I disclosed the existence of the rental property.  They've asked for the purchase documentation and copies of the solicitor's cash account.  I asked HMRC how these were relevant to determining the rental income as they were surely capital costs rather than income tax and their reply was that their request is ordinary and necessary to establish an audit trail and they are regularly given this information by taxpayers without any issues.

Would you judge these to be reasonable requests?  I don't really think there's anything to hide in this documentation, it's just that I'm always reluctant to give HMRC any information that isn't entirely within the scope of the current enquiry - I can't see how these items are necessary for determining the rental income.

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By maxaca
17th Sep 2019 13:17

they can find out how much it cost themselves directly from the Land Registry (at least the amount stated) and can compare with stamp duty returns submitted, but they may want to confirm this with source documents. However, their enquiry may not be entirely random and has already triggered an undeclared income source, so they may be working towards establishing how the client was able to afford to buy this property and whether there is anything else that may be flushed out.

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By Jdopus
17th Sep 2019 13:32

That's what I suspected Maxaca, in such a situation am I obligated to give them this information? I suspect it's probably easier just to let them see it to establish that it was done properly but found it a bit suspicious that they asked for this in an income tax check.

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Replying to Jdopus:
By SteLacca
17th Sep 2019 13:40

I suspect HMRC would simply issue a Sch 36 notice if you don't provide it, and their powers are drawn pretty widely then regarding what they can demand.

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Replying to Jdopus:
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By maxaca
17th Sep 2019 14:05

Whether or not you are obliged to provide the requested information is almost beside the point since penalties are assessed on 'behaviours' and being seen to be co-operative may reduce the scale of such penalties, whereas being unco-operative (unless it is obvious that the request is not relevant to anything - and if so that should be pointed out politely) will increase any penalties - as an investigation is already underway the disclosure is hardly unprompted, so provided there is nothing untoward about it, the requested information should be volunteered, if still available. Depending on how long ago the purchase was, it may not be; however, if so, that should be explained to HMRC i.e. you would like to provide it but are unable to do so. However, if there is anything likely to cause more questions than it answers, you should be having a serious conversation with your client before you engage any further with HMRC and possibly seeking more specialist professional advice.

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By Jdopus
17th Sep 2019 14:45

Much appreciated to you both. My own thinking is along the same lines - just thought I would double check.

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