Are you aware of what rental income and expenses you need to declare? We take a look into the Let Property Campaign and what it means for you if you’re a landlord.
What is the Let Property Campaign (LPC)?
When the LPC, or Let Property Campaign, began in 2013, it was estimated that up to 1.5m landlords had underpaid or failed to pay the correct amount of tax. The campaign was set up for those landlords to make voluntary disclosures to HMRC and take advantage of the reduced penalties for doing so.
When does a landlord have to declare their rental income?
If your annual gross property income – that is the rental income you receive – is £1,000 or less, then this is covered by the property allowance. In other words, you don’t need to contact HMRC.
If your annual gross property income is over £1,000 and up to £2,500, then you should contact HMRC. They may be able to collect the tax due through the PAYE system by amending your tax code. That can only be done, however, if you are already paying tax through your salary or pension, for example.
If your property income (that is rental income less expenses) exceeds £2,500, then you will need to register for self-assessment.
What is the process of the LPC?
Firstly, speak to an accountant because if you register for the campaign yourself, you will only have 90 days to submit and work out your proposal. It’s important for you to ensure you are ready to make the declaration first. That means getting all income and expenses together, including rental income and other income, such as P60s and P11Ds from employment.
Once you’ve got everything together, the following happens:
- Notify – you need to tell HMRC that you intend to make a declaration under the LPC. They will write back to you with a reference number and give you 90 days to make the declaration and pay the amount due.
- Disclose – you need to calculate the amount of underpaid tax along with the interest due and the penalty you are offering to pay as part of the declaration.
- Pay the tax you owe – HMRC ask for payment on the same day as the declaration is made however, payment plans can be set up if required.
- Acceptance or rejection – HMRC will write back to you to state whether they accept your formal offer or reject it. They may also request further information at this point.
What penalties would I have to pay?
The level of penalties ranges from 0% to 35%. What you owe will depend entirely on how late the disclosure is and the reasons why the income was not declared in the first place. A deliberate non-disclosure on a previous tax return is likely to yield a higher % than a careless error on a tax return. However, if you’ve not done a tax return at all but weren’t deliberately trying to conceal this from HMRC, you could pay around 10% in penalties. Each case has to be looked at individually in order to determine the level of penalties to offer as part of the disclosure.
What if I don’t make a disclosure?
Some landlords may think that they will never get caught out. It’s important to note, however, that HMRC does have access to information which can tell them you have rental income.
For one, letting agents are required to let HMRC know about rents collected from tenants on behalf of landlords who have used their services. Additionally, if you have paid stamp duty on a property, HMRC will know about it.
Suppose you choose not to declare your rental income, or make a voluntary disclosure, and HMRC launches an inquiry or investigation into your tax affairs, you could face harsher penalties and in worst case scenarios, a criminal conviction.
How can Bracey’s help?
Bracey’s have dealt with a number of LPC claims since 2013 and so we can guide you through the whole process from notification through to telling you the amount you need to pay. We will go through the calculation of rental profits, work out the interest due and help you put together your formal offer.
The rules relating to mortgage interest and allowable expenses have changed over the years and so it is always advisable to ensure that you get help if you are not familiar with the rules. Once we’ve got you all up to date, we can also do your annual self-assessment tax returns to ensure you remain compliant.