In many ways, HMRC has become much easier to deal with in recent decades. Its officials seem more willing to talk and to give advice. At the same time, any landlord contacting them should be careful and methodical.
Think about it: the role of HMRC officials – their moral duty, even – is to maximise the UK Government’s tax take at every opportunity.
It definitely isn’t to help individual taxpayers identify ways to achieve tax efficiency even if, in the past year in particular, HMRC has been impressively flexible about tax return deadlines and providing time to pay.
Even their online guidance, comprehensive as it is these days, naturally tends towards encouraging you to pay more tax. They’ll tell you about allowances and reliefs, yes, but they won’t present those as opportunities to reduce your bill, as such.
In general, when the UK Government either introduces or removes a tax relief, it’s because it’s trying to influence taxpayer behaviour. When it comes to property, in the context of a housing crisis, there’s constant pressure being applied on landlords to discourage the whole idea of buying-to-let.
The most obvious example of that is the erosion of the tax-deductible status from mortgage payments on additional properties from April 2017. In April 2020, the final phase of that gradual removal arrived and you cannot now claim any portion of your mortgage against your income tax bill, or mortgage interest if you own the property as an individual.
There are a few reasons people might think about approaching HMRC for advice, and why you should alway take at least a moment’s pause before picking up the phone. Let’s look at those in turn.
Undeclared rental income
If you’ve got undeclared income from a rental property, you should certainly declare it to HMRC at the earliest opportunity – but please, please get some professional advice from an accountant first.
For the sake of an hour on the phone, you’ll get a sense of how big your problem might be and we’ll be able to advise you on how best to present your case to HMRC.
The best avenue is through the Let Property Campaign, which effectively offers an amnesty for residential landlords who failed to complete a tax return or declare income.
It’s a pretty good scheme, as these things go, and does offer a genuine opportunity for landlords who’ve failed to pay tax to get straight and reduce the likely penalties.
Even so, taking some time to get your submission right is sensible. We’ll help you present your case in the right way and run the calculations necessary to work out what you think you might owe.
That might include reliefs and allowances you could have been claiming if you had submitted a return when you were supposed to – something it’s unlikely HMRC will highlight if you go straight to them.
As long as your submission is reasonable, clear, and supported with paperwork, they’re unlikely to dispute it. They’ll generally just be glad you’ve owned up.
You’ll still face a hefty tax bill but it won’t be anywhere near as bad as if HMRC finds you out before you find them.
Confusion over the technicalities
Tax is technical. It is complicated. And every time the Chancellor delivers a Budget, or HMRC updates its guidance, it usually gets more muddled again.
Income tax self-assessment is supposed to be simple and, to be fair, it’s a lot easier now than it was when it first launched more than 20 years ago. But the fact is that for most people, the forms are bewildering and stressful.
That’s when some people might be tempted to go to HMRC with questions. Now, apart from the fact they’re almost impossible to get hold of in December and January most years, it’s also not their job to help you work through the complexities of your situation.
In most cases, they’ll either refer you to the online guidance, or give you a fairly general answer. That might mean you miss out on legitimate tax breaks or, worse, talk yourself into paying tax you don’t need to just to be on the safe side.
“Is it OK if…?”
The worst possible reason to call HMRC with questions is to test out your ideas for how to save on tax.
These are totally reasonable conversations to have with your accountant. We won’t judge, we’ll always listen to your questions, and be honest in our responses.
The answer might be, nice try, but no dice.
Or it could be that your question highlights something that is worth exploring, such as changing the ownership of your property between you and your partner.
Whichever way it goes, no harm is done by talking it through and helping you increase your knowledge and understanding.
To put it bluntly, HMRC will, quite rightly, not want to have these conversations with you. As I said right at the top, their interest isn’t in helping you minimise your tax bill – it’s in ensuring you pay the tax they believe you owe, to fund school, hospitals and other public services.
And the worst-case scenario is that by asking the wrong questions, or expressing yourself carelessly, you give someone on the end of the line reason to think your affairs might warrant a tax investigation.
Even if everything is above board – even if you were only thinking aloud – a tax investigation is time consuming, stressful and potentially expensive.
Leave it to the professionals
If you’ve got queries about your property tax position, talk to us. If you’ve got ideas for how you might be able to reduce your tax bill, talk to us. If you’ve neglected to pay tax on rental income… Well, you get the idea.
We can probably answer your questions faster than HMRC, in more detail, and give you room to explore the options. We can help you complete any submission or applications that are necessary. And we can even handle those conversations with HMRC on your behalf, keeping it purely objective and professional.
For support with your landlord tax return and tax planning for your rental property, get in touch today.