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Still need to do a tax return

Rental income £8k / profit of £5k

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Client has always prepared tax returns and paid tax due to level of income (dividends).

His sole income now is rental income from a residential property of £8k which provides £5k of profit which of course is below the personal allowance, because the profits are between £2.5k - £10k am I right in saying he still needs to prepare a tax return - just seems a little unfair given the level of profits being well within the personal allowance? 

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By David Ex
14th Jan 2022 16:44

You’d need to ask HMRC to remove the client from SA.

What does the client live on?

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RLI
By lionofludesch
14th Jan 2022 16:57

If HMRC have asked for a return you can either get them to withdraw it or fill it in.

Whichever is easiest.

If it's a 2021 return, I think you're looking at filling it in, given that you're not likely to get a reply before 28th February.

Does the fella have mortgage interest to carry forward ?

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Replying to lionofludesch:
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By rmillaree
14th Jan 2022 17:54

The issue here may be that if hmrc do the "rental income and profit levels test" they often default to when deciding whether sa return is needed they will demand a tax return as their stance is that profits over 2.5k needs a tax return even if there is no actual need for a tax return. If you want to get the return cancelled the trick is to ensure they dont ask you that question as part of the cancellation process! Its a bit like the you must do a tax return due to the fact you are a company director nonsense that used to exist - thankfully hmrc eventually ate humble pie in that fight.

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Replying to rmillaree:
By SteveHa
16th Jan 2022 13:52

Oddly, whilst just going through my 20/21 reminders, I came across a letter I sent to HMRC for a client for 2018/19 and 2019/20 requesting withdrawal in almost identical circumstances to the OP. In my letter I highlighted that their guidance does not accord with TMA, and asked them to withdraw anyway. They did with no argument.

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By Not Anonymous
14th Jan 2022 17:31

Do you mean now as in 2021/22 or are you referring to 2020/21 onwards?

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By D V Fields
14th Jan 2022 19:05

I don’t think HMRC operate on fairness. I think you need to do one when requested by HMRC to do so or if not requested but have untaxed income the advise HMRC accordingly. If asked to do one but consider not necessary then ask HMRC to withdraw the requirement. I had a client in similar position who was able to have the requirement removed after speaking with HMRC (after statutory waiting time on phone of course).

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Replying to D V Fields:
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By Tax Dragon
14th Jan 2022 22:23

Hugo aside, what does fair look like? Modern definition seems to be based on treating everyone the same.

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Replying to Tax Dragon:
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By D V Fields
14th Jan 2022 22:57

“Computer says.”
An algorithm for fairness? We could ask the GCSE markers (or whatever they are called these days) to dream one up.

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Replying to Tax Dragon:
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By Hugo Fair
14th Jan 2022 23:12

Fame at last ... name-checked on Aweb!

In the unlikely event that anyone's interested in a little practical philosophy, the question of 'how to measure fairness' came up in some obscure HR quango many moons ago ... and the (majority) decision was that, since there was no known way to measure the moral dimension (too many factors and opinions), the only logical quantum to measure would be consistency.
Which is why you'll often find the need for consistency buried within the heart of many HR guides to 'best practice' in x or y or whatever!

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Replying to Hugo Fair:
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By Tax Dragon
14th Jan 2022 23:54

Consistency sounds like proper speak for treating everyone the same.

And that thinking does indeed produce a computer says no outcome (because for it to work you have to strip individual officials of their discretion... individual discretion obviously being the antithesis of consistency).

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By TheNovice
14th Jan 2022 21:17

I was under the impression a return is mandatory if rental income was above the property allowance - £1,000.

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Replying to TheNovice:
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By Hugo Fair
14th Jan 2022 22:14

From whence came this impression?

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Replying to Hugo Fair:
RLI
By lionofludesch
14th Jan 2022 22:29

Anything can be overridden by agreement, even if the assertion were true.

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Replying to Hugo Fair:
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By Paul Crowley
16th Jan 2022 17:31

HMRC website says:
No return or information needed if rent below £1,000
Advise HMRC if over £1,000 and below £2,500

https://www.gov.uk/renting-out-a-property/paying-tax

"Property you personally own
The first £1,000 of your income from property rental is tax-free. This is your ‘property allowance’.

Contact HMRC if your income from property rental is between £1,000 and £2,500 a year.

You must report it on a Self Assessment tax return if it’s:

£2,500 to £9,999 after allowable expenses
£10,000 or more before allowable expenses"

The last two lines I do not recognise from last time
Probably added on for MTD purposes

HMRC agent helpline does not always have staff that have read this. I was told by the agent helpline that a lady with £170 for the powerline needed to continue tax returns

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Replying to Paul Crowley:
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By Hugo Fair
16th Jan 2022 17:55

Precisely ... maybe I was being too subtle in my quizzical response to Novice's "I was under the impression a return is mandatory if rental income was above the property allowance - £1,000"!
As other's have mentioned (less explicitly) ... for an action to be mandatory it needs to be set out as such within legislation - not merely espoused by HMRC within their 'guidance', which just describes their opinion (not always the same thing at all)!

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Replying to TheNovice:
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By David Ex
14th Jan 2022 22:47

TheNovice wrote:

I was under the impression a return is mandatory if rental income was above the property allowance - £1,000.

Always refer to legislation for the definitive answer. HMRC sometimes confuse what they want to happen with the law.

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Replying to David Ex:
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By Tax Dragon
14th Jan 2022 23:57

And the law says you have to file a return if a notice to file a return is issued and not withdrawn.

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Replying to David Ex:
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By TheNovice
15th Jan 2022 08:51

David Ex wrote:

TheNovice wrote:

I was under the impression a return is mandatory if rental income was above the property allowance - £1,000.

Always refer to legislation for the definitive answer. HMRC sometimes confuse what they want to happen with the law.

Thank you, will do

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By Matrix
14th Jan 2022 23:57

Call the SA helpline and if you get to speak to the right person then future returns may be cancelled. Although if there is still a source of rental income then they may not agree.

Yesterday I must have spoken to the right person as I had 4 returns cancelled including a 19-20 one with £1,400 penalties.

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Replying to Matrix:
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By Tax Dragon
14th Jan 2022 23:59

The 'right person' being the one willing to exercise the discretion that Hugo and his quango stripped them of many moons ago....

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Replying to Tax Dragon:
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By Hugo Fair
15th Jan 2022 01:10

Ah but HR got there long before HMRC (or even most politicians) ... in realising that strict rules, consistently applied, give great power to the individual who is prepared to apply discretion on a one-off basis (usually in return for an indirect favour).
So the individual needs discretion in order to gain/retain power, but the value of discretion is only generated if there is a bedrock of consistently applied rules (for everyone else). Boris, not uniquely, has always worked on this principle.

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By rmillaree
15th Jan 2022 09:08

Just for completeness here is the link to the guidance in the sa manual with confirms hmrc stance on the subject as to whether a return is needed and/or can be cancelled.

As normal hmrc's quirky demands may not tally with the legislation as written.

Perhaps its not completely ridiculous decision though asking for returns if profits are reasonable - like sole trader unless you submit totals to hmrc its hard for hmrc to know if things are as they should be if they come across the income source in passing and would like to check that income has been declared "on the return".

https://www.gov.uk/hmrc-internal-manuals/self-assessment-manual/sam100060

An SA record is required where an individual has either completed form CWF1 or SA400 or SA401 or SA402 or SA1 and/or they fall into a category below.

For tax years 2016-17 onwards

Is receiving income from letting any property or land that exceeds £10,000 gross, irrespective of the amount of expenses to be set off, or if the net amount is more than £2,500

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RLI
By lionofludesch
15th Jan 2022 09:25

To be honest, I'm struggling with the concept that it's "unfair" to tell HMRC that your profits are too low for you to pay tax.

If you've next to nothing to declare, exactly how much of an imposition is filling in a tax return?

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By bernard michael
15th Jan 2022 09:44

If it's his sole income is £5k what does he live on

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Replying to bernard michael:
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By rmillaree
15th Jan 2022 10:16

"If it's his sole income is £5k what does he live on"
ISA savings ?
tax free pension drawdowns
Professional gambling winnings
spouse's income
Ariston

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Replying to bernard michael:
RLI
By lionofludesch
15th Jan 2022 10:39

bernard michael wrote:

If it's his sole income is £5k what does he live on

Maybe he's a hunter-gatherer.

Worth pointing out, of course, that £5000 is about £1000 more than a single person's Universal Credit so I can't see HMRC disputing that it's impossible to live on such a huge sum.

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RLI
By lionofludesch
16th Jan 2022 07:21

Comments from everyone but the OP here, it seems.

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Replying to lionofludesch:
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By Tax Dragon
16th Jan 2022 08:10

Can be more fun that way - allows the thread full scope to meander (eg talk about the taxation of hunter gatherers) rather than trying to answer a question.

Presumably in the days when the two recognised professions in the UK were law and accountancy and the two main trades were hunting and gathering (...one of the earliest tax cases recorded was to determine whether that was one trade or two), people didn't pay tax as such - it was done by tithes. Or in those days maybe even tythes. Hunters and gatherers had to put a tenth of their produce into government storage facilities. (When these were privatised, the first capital v revenue and plant cases ensued.)

Obviously, if you ate some of what you had hunted and/or gathered while you were out hunting and/or gathering it, you tythed on the gross. There were things called "unexplained weight-gain orders" that imposed additional charges on those that may have been underdeclaring the amount of self-consumption.

In many ways not much has changed. Except now we have tracking devices so we can tell the mileage our hunter gatherer clients have done.

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Replying to Tax Dragon:
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By Hugo Fair
16th Jan 2022 10:34

Brilliant. When the 'Horrible Histories' series moves into the business sphere, they'll know where to turn for an author!

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Replying to Tax Dragon:
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By rmillaree
16th Jan 2022 11:05

"Hunters and gatherers had to put a tenth of their produce into government storage facilities."

Interesting

I bet they were really [***] about paying the 10% tythe - they had no idea how lucky they were compared to how it would have worked back then if taxes and tythes were run by the current set of bods.

With todays taxation principles no doubt if they had 11 kids - if the catch went from 100 squirrels to 101 squirrels they would have 12 squirrels confiscated with that one extra squirrel in the bag due to the all of nothing nature of squirrel childrens tythe relief being removed when your annual haul exceeds 100. Note not the end of the world really as anyone who has caught 100 squirrels should be able to put aside the 11 extra squirrells during the year (childrens tythe relief meaning they hadnt paid owt) in readymeant for the feast of the chief fat guy in charge. No squirrels have been harmed in the making of this story.

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Replying to rmillaree:
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By Tax Dragon
16th Jan 2022 14:11

rmillaree wrote:

I bet they were really [***] about paying the 10% tythe...

I reckon then, as now, it depended on your political views and personal beliefs. But, logically, if you can see the benefit of paying tax, you will be much happier paying. (That's probably why they waited until there was a war with France on before they introduced the modern tax system.)

Maybe when the government of the day released the summer's haul over the course of the winter, or as you say to feed that 11th child, the people were happy to have contributed to the national store. And they then didn't mind tithing again the next year.

(And in those days only the government could afford the refrigeration units for the stores. People had to act together.)

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