Confusion with rental property

milip

My husband and I started renting out our flat in Oct 2010. My husabnd contacted HMRC in Nov, and again in January - this time with our NI numbers. They said that we could not do self assessment and that they would just recalculate our tax code and do it that way. However I don't see how they can do that - what about the deductible expenses etc? They have already applied the new tax code to me.
Is this correct or should we push for self assessment?

Thanks
Milip

chrismac1

Sounds like tosh to me from HMRC. First off, anyone who wants to submit a self-assessment tax return is entitled to do so. Secondly, as you correctly say, if you are not doing a self-assessment return I can't see how they can calculate the rental profit - unless by chance the HMRC employee you spoke to was telepathic. In which case I wish they'd hire more of this sort and save us all a load of trouble!

noh

If you started renting the property out in Oct 2010 the income needs to go on your 2010-2011 tax return.
You cant make a tax return for that period until after April 5th 2011.
Easiest thing to do is register online here
https://online.hmrc.gov.uk/login

milip

I understand being the wrong tax year atm, but why are they taking the tax off me now?

noh

milip wrote: »

I understand being the wrong tax year atm, but why are they taking the tax off me now?

Makes no sense at all.
Presumably they sent you a notice of coding that will show their calculations.

ncthomas1

Call them and ask them what is included in the code. I really dont think it has anything to do with rental income/ profit/ losses, espeically as you havent even submitted them.
Be aware as well, any "Expenditure" that you make on a property is NOT allowable BEFORE a tennant moves in, so, people who go around gutting and rebuilding properties, then rent them out, are often horrified when they realise the cost of the works prior to the tennant is not allowable
Im an accountant so I kind of know about these things lol. Any questions just ask and i will do my best to help on here

dori2o

If the income from property is less than £2500 it can at your request be collected via the tax code rather than subject you to Self Assessment.

When first putting the figures into the code they will have asked for an estimate of the profit you expect to make.

At the end of the tax year if this figure in the code is too low or too high, then you would need to contact HMRC to advise them the correct figures so they can do an assessment, this would normally be done via the issue of a form P810.

You can however call HMRC personally (it cannot be done via a 3rd party) and request that the Income from Property is removed from your code and is dealt with via Self Assessment.

I would suspect that the reason why HMRC have done it via your code is because your husband made the call, and they cannot set up a self assessment record without speaking to the individual, or their registered adviser, directly.

Information however can be taken from a 3rd party to amend your tax code.

milip

Thank you for your comments.
I have just received a letter about the tax code, but it doesn't explain how they got their figure, which is under the 25000 mark, they had asked my husband the income not the profit, but it isn't that figure either. And considering it is only part of the tax year, we would surely have to do self assessment the next year anyway?
I guess i will have to phone them and ask for self assessment and my husband will have to do the same, even if they previously said we couldn't? And they will switch me back to my old code?
Oh and thanks for the advice about the expenses before occupation, we spent very little, but it is good to know not to include it.
Milip

chrismac1

PIM2505 - in fact it's very possible that expenditure incurred up to 7 years before the tenant moves in is allowable as a deduction:

Expenses incurred before rental business begins

A taxpayer may incur expenses for the purposes of a rental business before that business starts. If so, they may be able to claim a deduction for them once the letting begins, (ICTA88/S401 or ITTOIA05/S57). Relief is only due under these special rules where the expenditure:

• is incurred within a period of seven years before the date the rental business is started, and
• is not otherwise allowable as a deduction for tax purposes, and
• would have been allowed as a deduction if it had been incurred after the rental business started.

This means that, to be allowable, the expenditure must be incurred wholly and exclusively for the purposes of the rental business and must not be capital expenditure etc (see PIM2000 onwards). Thus, for example, rent paid to lease the first rental business property could be allowable under these special rules if it is due before the property is first let provided the property was acquired solely for the purposes of the rental business.

Relief isn’t due under the special rules for, say, rent on the taxpayer’s own private residence which is payable before they begin to let it (after, say, taking a job in another part of the country). Their expenditure on rent was not incurred wholly and exclusively for the purposes of their rental business - it was incurred to provide them with a home. Relief would be due under the ordinary rental business rules for rent for periods after the property was let commercially.

Qualifying pre-commencement expenditure is treated as incurred on the day on which the taxpayer first carries on their rental business. This is deducted, together with the other allowable expenses of letting, from the total receipts of the business for that year.

Mikeyorks

milip wrote: »

they had asked my husband the income not the profit, but it isn't that figure either.

It won't be. The deduction in the Code is the grossed up amount? You need to multiply it by 20% to get at the amount of tax it is intended to recover. eg a £1000 reduction of your Personal Allowance will recover £200 ..... if you're a basic rate taxpayer.