Ten things you should know
HMRC’s Let Property Campaign is an opportunity open to all residential property landlords (but not to companies or trusts) with undisclosed taxes. This includes single and multiple properties, holiday lettings, rent-a-room for more than rent-a-room threshold; however, the campaign is not open to non-residential properties such as shops, garages etc.
1. Why should you make the disclosures?
The Let Property Campaign offers the best possible terms available to get your tax affairs in order. You may not have to pay any penalty at all but if you do it is likely to be lower than it would be if HMRC finds out you have not paid enough tax.
If you choose not to tell HMRC about undisclosed liabilities and if HMRC is carrying out compliance checks or enquiries, the customers involved will not then be able to use the opportunity offered as part of the campaign. Where additional taxes are due HMRC will usually charge higher penalties (up to 100% of the unpaid liabilities, or up to 200% for offshore related income) than those available under the Let Property Campaign.
2. How to notify?
As soon as you become aware that you owe tax on your letting income you will need to tell HMRC that you wish to make a disclosure. HMRC requires a separate notification for each disclosure so if a husband and wife both have undisclosed income, they must complete separate disclosures showing the share of the income they need to disclose.
The notification can be made using Digital Disclosure Service (DDS) form. HMRC will then write to you to tell you your unique Disclosure Reference Number (DRN). If the taxpayer is using an agent, the agent can use the Agent DDS form. HMRC will then send a DRN and a PRN.
3. What are the deadlines?
A disclosure can be made as soon as the DRN is issued but must be made within 90 days of the date they receive notification acknowledgement.
The disclosure under the Let Property Campaign comes with certain terms and conditions, one of which is that the disclosure and payment must be received by HMRC by the date stated on the notification acknowledgement. If they cannot pay by the deadline the taxpayer must make a payment arrangement with HMRC by that date. The disclosure or payment must not be submitted until they have spoken and agreed the payment plan with HMRC.
4. How many years to include in the disclosure?
If you failed to register for a Self-Assessment tax return by the appropriate deadline (which is 5 October after the end of the tax year for which you start to receive that income) you will have to pay HMRC what you owe for a maximum of 20 years.
If you have taken reasonable care
If you registered for a self-assessment tax return by the appropriate deadline, have taken care to make sure your tax affairs were correct but you have still paid too little, you will only have to pay HMRC what you owe for a maximum of four years.
If you did not take reasonable care
If you registered for a Self-Assessment tax return by the appropriate deadline but you have paid too little because you were careless, you’ll have to pay HMRC what you owe for a maximum of six years.
If you deliberately misled HMRC about this income
If you have deliberately paid too little tax, you will have to pay HMRC what you owe for a maximum of 20 years.
5. What about incomplete records?
If the records are incomplete, you should make your best estimate of the undisclosed income and gains and use this to make your disclosure. The estimates have to be reasonable, and you should keep copies of the workings in case HMRC asks for further explanations. The taxpayer might be able to contact the bank to provide them with copies of the statements to support the amount included in the computation.
If you cannot get copy statements at all, you should work out your income by using more recent statements as a guide to your income and expenditure. HMRC may ask you to explain why you could not get copy statements.
6. What about other undeclared income?
A condition of taking part in the Let Property Campaign is that you include all of the income you have previously not told HMRC about, such as profits from another business, investment income and capital gains.
The disclosure form should indicate if there is an underpayment of any other taxes such as VAT or IHT. Those details will be passed on to the appropriate department within HMRC.
7. How to calculate the interest?
Once you have worked out the additional rental profit (rental income less allowable expenses) you will need to work out how much tax, interest and penalties are due on that income.
HMRC has produced a calculator that you may be able to use to work out the interest for tax years ended 5 April 2002 to 5 April 2021. If you fail to include the correct interest your disclosure will be rejected as it will not be complete.
8. What about penalties?
HMRC has produced two factsheets on penalties, one for inaccuracies in returns and the other for failure to notify; the factsheets provide guidance on the statutory range for penalties and how they can be reduced. You should read these factsheets which provide more detail about calculating any reduction.
Although the rate of the penalties will vary depending on the circumstances, they will usually be lower if you make a voluntary disclosure.
9. How would HMRC acknowledge the disclosure?
HMRC will send an acknowledgement as soon as possible but if you have not received an acknowledgement within two weeks of sending your disclosure, phone the Let Property Campaign Helpline on 0300 123 0998. Disclosures that are found to be materially incorrect or incomplete when checked by HMRC are unlikely to be accepted under the Let Property Campaign.
10. What about future years?
HMRC expects the taxpayer to continue to accurately declare the income and gains for those years that fall after the latest year included in the disclosure. The taxpayer should maintain proper business records. If HMRC finds in the future that you have failed to keep appropriate records, they can charge penalties of up to £3,000.