Tax bill coming

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    Tax bill coming

    Greetings one and all.

    Ok I've been a bit stupid.
    Bought a flat and lived in it for a while then moved back home with parents.
    Decided to rent the flat but not tell anyone about it.
    Now I have just received a letter from HMRC stating they know I have this income.
    I have one month to set my affairs in order and produce income/expenditure statements.

    If the bill is so great then I will sell the flat to pay it off.
    I will still be left with some capital but less than I thought.
    It's not the end of the world but can someone advice me on the worse case scenario?
    Will a fine be levelled at me?

    The flat doesn't make any profit, all rental income goes to paying the mortgage and various insurances.
    Also I have spent money on installing a central heating system and garden renovations.
    I am fully prepared to pay this bill but not sure how big it will be.
    Can anyone offer any advice on this matter.
    I have about three weeks to submit my accounts.

    What's the worse they can do to me and how far back can they go?

    Many thanks.

    #2
    Originally posted by Edii View Post
    Bought a flat and lived in it for a while then moved back home with parents.
    Decided to rent the flat but not tell anyone about it.
    Have you done anything by the book? Deposit protection, Gas certificates, Proper AST contract, Landlord Insurance, Told your mortgage company (or are you still on a residential mortgage and going against their T&C's which they can call the mortgage in for)?


    Originally posted by Edii View Post
    The flat doesn't make any profit, all rental income goes to paying the mortgage and various insurances.
    Very naive of you, if the interest and the capital are paid off, i.e the mortgage paid then there is a large profit right there. The interest element is tax deductible, the rest isn't, it's treated as income.
    "I'm afraid I didn't do enough background checks apart from checking her identity on Facebook" - ANON

    What I say is based on my own experience and research - Please don't take as gospel without first checking the gospel yourself.

    Comment


      #3
      I suspect you will find that the letter is somewhat speculative.
      They are written to scare people that HMRC believe are landlords as part of an ongoing campaign to find people exactly like you.

      You should get in touch with an accountant as quickly as possible.
      Someone local that you feel you can trust is useful (they'll usually meet with you for free to establish what they can do for you and quote you for the services, so maybe meet a couple).

      HMRC have the power to fine you and charge you interest on the payments that you should have made.
      Their penalty structure is quite complex and is based on a percentage of the tax you didn't pay and how helpful you have been in them recovering it.
      They have various schemes for repaying the tax, so you can possibly spread the pain a little.

      The tax isn't technically on the profit (it's called income tax because that's what it is).
      But you can offset some costs against the income (as being necessary expenditure in order to generate the income).
      The interest on the mortgage (not the capital element), repairs and maintenance, mileages and so on.

      You can't claim improvements against income (they are considered when you sell the property and calculate capital gains tax).
      So if there was no central heating and you added it (while you were renting it) that would be an improvement, but if you were modernising existing central heating you might get away with it as an expense.
      Garden renovations are again something to discuss with an accountant - building a shed is an improvement, fixing a mess might be maintenance.

      Your accountant will work it out for you, and can probably buy some time from HMRC.

      For a rule of thumb, for the last 6 tax years, take all the income you have received, deduct the mortgage interest and any maintenance costs in the same year and multiply the result it by your marginal tax rate
      (20 or 40% - if it would have moved you from one to the other it's just more fiddly to do).

      The actual numbers will be calculated on the tax rates from the actual years, but this will give you some idea of the scale of your problem.

      If you've been doing this on a residential mortgage, it's likely that this will come to the lender's attention at some point.
      When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
      Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

      Comment


        #4
        Thank you very much for your time in writing your replies.

        All the day to day running of the flat is completely legit.
        AST, gas certs, insurances, all above board.
        The mortgage is buy to let so there will be no issues with any of this.
        It's just the tax bill that's going to hurt.

        I am going to phone the revenue this morning and tell them I want to make a disclosure.
        I'm just going to put my hands up and come clean.
        See what they throw at me.
        I'll let you know.
        I mean it's only money at the end of the day, it's not like they are going to throw me in jail, well I hope not anyway.
        I just wonder how far back they want to go.

        Comment


          #5
          How long have you been renting the property out. Regards Peter

          Comment


            #6
            About eight years.

            Looking at a bill of about £10,000 but that is before any expenses are taken away from it.

            So it's not the end of the world.

            It's just no holidays or meals out for a while.

            Better start improving my home cooking, maybe start eating lentils cos they are cheaper.

            Comment


              #7
              You are much better to do this via an accountant.
              HMRC have a lot of power.
              You want someone who knows what's normal and when they're pushing their luck.
              When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
              Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

              Comment


                #8
                Advice gratefully received.

                I will start looking for a local accountant today.

                South Surrey area who specialises in this sort of thing.

                Anyone have any recommendations?

                Comment


                  #9
                  Just find a local firm who you feel confident in.
                  Ideally a practice with four or five people in it (small enough but large enough).
                  Not a one man band.

                  Google them and then have a look at their offices.
                  Meet with a couple and get a quote.

                  Your feeling of whether you want to do business with them is the most important thing.
                  When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                  Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                  Comment


                    #10
                    Hi,

                    I just wanted to reply to say don't worry too much. I got myself in a bit of a pickle too a few years ago - Had 5 years un reported letting.

                    Anyway, HMRC found out, but the bill wasn't anywhere near as much as what I thought it would be. Once all your figures are submitted you pay the tax owed. Then the fine will be a % of what is owed, the % depends on how much they think you've purposely tried to hide the income from them, I believe it can be up to 100%, but after negotiating I think mine was only 20%. I believe the quicker your willing to pay (Ie the whole amount immediately) also helps lessen the blow.

                    I used this accountant after another recommendation on this site. They're not local to me (I live in Australia) everything was mainly done via email and a few phone calls. They were very good and talked me through everything that needed to be done.

                    http://www.fyldetaxaccountants.co.uk/about-us/

                    Comment


                      #11
                      Why am I reading that as 'fiddle tax accountants'

                      Comment


                        #12
                        lets hope they don't use you as an exemplar to 'what might happen of you don't pay your taxes' - I have a feeling that as they have started this publicised 'look' at landlords, they may want to demonstrate how effective and punitive they can be. get it sorted asap and pay immediately, you may find that there was no tax due for the first couple of years, depending on level of income etc, so the monies due might not be as bad as you think. as for selling the flat to pay for the tax bill, that might not be quick enough for hmrc !!!

                        Comment


                          #13
                          In all fairness to accidental landlords, not realising about declaring rental income for a couple of years is, in my book, excusable. But eight years and the penny hadn't dropped to declare income?? I wouldn't hold my breath against getting a huge fine and some might say it is well deserved.

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