Today RITA4Rent are blogging about the HMRC Let Property Campaign letter (referred to as AI or A1 letter) which is currently being sent out to thousands of landlords with undeclared rental profits. The letters have been drafted, and the send-out is being staggered over several months. If you are a landlord with undeclared rental income, and you are yet to receive a letter, expect to receive one soon! The letter can confuse unsuspecting landlords, so the focus of today’s blog is to review the content of this letter in detail, and explain the full meaning of each sentence.
The letter begins with the wording “HMRC has data relating to landlords and is comparing this with what individuals have, or have not, told us. This letter is the first stage following that process as HMRC is aware you are a landlord who is letting property and that you may be liable to tax on that income.”
In essence, the introductory sentence confirms that they have gathered information from various sources, including but not limited to, data from letting agents, records from Land Registry and council tax files. By comparing the information they hold, with a lack of any self assessment record, creates the flag in generating the letter. It is worth paying attention to the phrase “may be liable to tax.”
Of course, HMRC are going to have limited information regarding rental expenditure. If your expenditure exceeds your rental income, you would have made a loss, and therefore, you would not need to register under the Let Property Campaign. You would however, still need to respond to this letter.
A simple telephone call should suffice, to ensure they update your records with HMRC accordingly. Of course, there may still be the need to register for self assessment moving forward, and we would advise you seek professional advice here. We would be happy to provide guidance here should this be required, so please contact us should you wish to discuss this further.
The letter continues with the wording “The Let Property Campaign gives you an opportunity to bring your tax affairs up to date if you are an individual landlord letting out a residential property.”
The gist of this sentence is that by coming forward under the Let Property Campaign, as with other recent campaigns, you would benefit from more favourable terms.
The next section of the letter seeks to explain what the next steps are for the letter recipient. After the bold headline of “What should you do within the next 30 days” the text continues with: “If you have not previously told HMRC about your rental income, or you have not declared the correct amount, please refer to the guidance at https://www.gov.uk/let-property-campaign. This will guide you through the process of bringing your tax affairs up to date. As you have not already made a voluntary disclosure of your income prior to receiving this letter, your disclosure will be classed as “prompted.” This may affect the penalty which you will have to pay.
Essentially, they are referring to their own guide, which you may find useful, along with our various blog postings on the subject. What is also important, is that given you have received this letter, the “may affect the penalty” phrase is a little bit of a red herring, and you may wish to refer to our recent blog which sets out exactly how your penalty will be affected. If you have made a notification before receiving this letter, it is very important to ensure HMRC update their systems accordingly.
The letter continues: “We need you to tell us on 03000 514479 if you are making a disclosure. We also need you to call us on the same number if any of the following apply to you so we can help you bring your tax records up to date.” The options being
1) “you are not a landlord,”
2) “your allowable expenses are greater than your income and there is no taxable letting income,”
3) “your letting income has ceased,”
4) “you have only recently started to make profits that need to be returned to HMRC,” and
5) “you already return the income to HMRC.”
All the options above, will result in you NOT needing to register under the Let Property Campaign. Focusing on each one of the above individually:
1) HMRC may hold incorrect records on your circumstances. It is therefore important to contact them if you are not a landlord, so that your records can be updated accordingly.
2) The second option is stating that you need to contact them if you have made a loss on your letting activities. In this instance, there would be no taxable profits to declare, and therefore again, they would need to update their system as necessary to prevent any further issues. As previously stated, just because there is no need to report under the Let Property Campaign, does not necessarily mean that you will not have to file self assessment tax returns in the future.
3) The third point assumes you both know there has been letting income in the past, but HMRC still feels the letting activity has continued. If letting income has ceased, perhaps because the property has been sold, then it is important to update them as necessary, and ensure that no past information has been withheld.
4) The fourth option suggests they incorrectly hold information that you received rental income earlier than you actually did. In this case, if for instance your rental activity started in May 2013, this would not fall under the scope of the Let Property Campaign. You would need to inform them of this, and ensure any taxable profits are reported to HMRC moving forward. Please note, the Let Property Campaign serves the purpose to report taxable profits up to and including 5th April 2013.
5) The final option is stating that you need to let them know if you have already submitted the relevant taxable income to HMRC. There may be an issue with their computer system, and it still important to explain the situation to HMRC.
The final paragraph of the HMRC Let Property Campaign letter states: “We need you to call us within 30 days of the date of this letter, so please act and respond. If you do not, and our information indicates you have not declared or paid the correct amount of tax, we will take action which could result in you paying a higher penalty or you could face criminal investigation.”
Therefore, what you must do is not ignore this letter, whatever your circumstances. If, based on the aforementioned wording, you feel the Let Property Campaign is irrelevant to your situation, you must inform them nevertheless. If however, you do have past undeclared rental profits to submit to HMRC, then you will need to submit a notification form DO1 as a matter of urgency. You will then be able to complete the Let Property Campaign process as detailed in our previous blogs via the DO2 form.
We hope this blog has brought clarity to the daunting letters being sent out by HMRC with regards the Let Property Campaign. Should you require property tax specialists to aid you through the entire process, and to deal with HMRC on your behalf, please do not hesitate to let RITA4Rent know.
Alternatively, to arrange a free initial consultation in the strictest confidence, please call one of our property tax specialists today on our free helpline – 0800 1 22 33 57 or contact us by email.