Scared to admit to tax mistake!

NicChanna

Hey all,

Hoping someone can give me some advice here ... I moved abroad with my then-husband in 2006 and we let out our house for 2 years. After coming back we split up and have let it again since July 2010 until now.

My relationship with my ex-husband was such that I literally took nothing to do with money; couldn't have told you who supplied our gas or electricity, couldn't have even guessed at how much our mortgage cost per month or who it was with, couldn't have told you how much he earned - anything.

I just toddled off to work (which I knew wasn't actually necessary but I liked my job) and put my card in the hole in the wall whenever I wanted to fritter away money. That's probably the reason that after we split I got into so much debt - I'd always been used to having everything I wanted straight away because there was always lots of money about.

He still lives abroad and recently got in touch to say that HMRC had contacted him to say that he had to fill in some tax return or something. He said that throughout the time we had let the house out we were supposed to have been taxed on it but we hadn't declared our liability for this tax.

I know that I owe this tax now and I want to pay it. However I am scared to phone up and admit that this tax has gone unpaid for so long incase I am fined a huge amount or taken to court.

The situation is made even more complicated by the fact that my ex-husband has said that his tax return only asks him about this year so he is only going to declare his liability for this year. He said it is up to me if I want to admit that it wasn't paid before that.

Actually I want to admit to everything and pay everything (I have an inconveniently sensitive conscience lol) but I think if I do that it will show up that my ex-husband had omitted to declare the other years. This might get him into trouble.

I certainly don't wish him ill and he is getting remarried next year so perhaps thats the reason he wants just to admit this year - trying to save for a wedding. I feel like he should pay everything too though but earnings in the country he lives in are very low so maybe he literally can't afford to.

I don't know what to do ...

Will the HMRC understand what my situation has been and be glad that they are getting the money now, though late? I have been saving money in order to pay the tax back in one lump sum (the total due from me since 2006 is around 500GBP.)

Or are they likely to take the (perfectly understandable) view that I should have known more about my financial situation and that what I've/we've done constitutes fraud?

Am sick with worry!

chrismac1

Relax, the chances are that you don't owe much tax at all and it's even possible you are due a refund. Technically you should have informed HMRC about this source of income by 5 October 2007 and completed tax returns under self-assessment, your tax bill is 20% times 50% (your share) times (rental income less allowable rental expenses). Right now it's not that unusual to be losing money on buy to lets, that's the case for about 50% of my clients who own them.

First you need to figure out exactly what your tax bill (or refund) is, starting in 06-07 up to 10-11. Then register for self-assessment and submit the returns, 10-11 and 09-10 online and the earlier years by paper. There should be no fines as you have not been asked to submit tax returns, hence have not at this point submitted any late returns. There is no chance of any Court action or other legal stuff, providing you either pay any tax due quickly or - if necessary - agree a Time To Pay agreement and then stick to it.

mrcow

At the end of the day, ignorance is not a valid excuse as far as the tax office are concerned and neither will they be impressed if you or your ex are trying to compound the problem by knowingly trying to deceive them about previous years (called fraud btw - a criminal offence).

It's not about "getting in trouble" - it's about getting the records correct. You need to declare what the situation was and work out how much is owed. Hardly a dilemma and certainly nothing to make yourself sick over. Contact you tax office for advice if you're unclear about what you should be completing or telling them. They are there to help - it's what they are paid for!

NicChanna

Thanks so much for this reply ... a couple of actual figures below and how I'm interpreting them ... please let me know if I'm being an oaf and getting this wrong ...

Money I get from rental each month: 90GBP
Number of months house has been rented out in total: 35months

So ...

90 x 35 = 3150GBP
3150 x .90 = 2835GBP ('wear and tear' deduction)
2835 x .20 = 567GBP (income taxed at 20%)

Total Tax Payable for 35 months = 567GBP

Does this seem right? (sorry for lack of pound signs)

POPPYOSCAR

Did you have a mortgage on the property as the interest can be deducted. Also did you have the property insured as this can be deducted as well.

The balance will be added to any other income you earned in that period so if that takes you to a higher tax bracket then you will pay the higher rate.

NicChanna

Hey Mr Cow - thanks for your post.

You are so right, it's not about getting in trouble, it's about everyone paying what they should and contributing fairly. I know that ignorance isn't an excuse but it is the reason behind me not knowing I had to pay anything until now.

I want to pay the whole lot (as my calculations show) and I am willing to sacrifice anything else that will mean I can pay immediately. I am mortified that this has happened and it really makes me wish I had been involved in financial matters in my ex-marriage. It was terribly easy to be practically a kept woman.

So shall I just call them tomorrow and explain everything? I have had a look at some of the HMRC forms and I feel that there is a good chance I wont know what I'm doing with them. Can someone from the HMRC help you complete them?

NicChanna

Thanks for your post POPPYOSCAR.

Yes the property has a mortgage on it so perhaps that deduction will apply.

And yes it has been properly insured at all times with the right insurance, this I know for sure as a claim had to be made for the roof while we lived abroad and it was discussed.

I'm trying to set up a Skype call with my ex-husband so that we can discuss these things 'face-to-face' (he still lives abroad as I said).

Also the income will not push me into the higher tax bracket so nothing to think about there.

jennifernil

Did you own a half share in the property?

£90 per month, if that's half, is a very low rent.

POPPYOSCAR

NicChanna wrote: »

Thanks for your post POPPYOSCAR.

Yes the property has a mortgage on it so perhaps that deduction will apply.

And yes it has been properly insured at all times with the right insurance, this I know for sure as a claim had to be made for the roof while we lived abroad and it was discussed.

I'm trying to set up a Skype call with my ex-husband so that we can discuss these things 'face-to-face' (he still lives abroad as I said).

I think that is a good idea.

From the sound of things you will not have much back tax to pay anyway.

Much better to get it over and done with and have nothing to worry about, especially with the small amount in question.

Your ex will just have to understand, and for his own sake needs to declare this as well. On each of our tax returns it is stated that this income is from joint income.I am not sure if you can just put your share down, and anyway the Tax office may ask you the question anyway.

NicChanna

jennifernil wrote: »

Did you own a half share in the property?

£90 per month, if that's half, is a very low rent.

Hi Jennifernil - thanks for your post.

Perhaps I'm not using the right terminology here ... There is 180GBP left from the rent we get after the mortgage, insurance, and other things (not totally sure what they are but I trust my ex-husband's calculations) are paid each month.

I don't actually know the exact figures for the rent we ask for and the mortgage payment etc but again I trust he isn't doing me out of money. Still these are questions I can ask when we Skype.

The rent is paid into my ex-husband's account and the expenses come out of his account. So at the end of the month, when there is 180GBP surplus that is the profit we make on the rental income. He then transfers 90GBP to me.

Therefore my personal profit has been 90GBP per month for 35 months since 2006. (The house wasn't let out solidly since 2006, we lived in it ourselves for the other months not accounted for.

If I'm working this out wrong please feel free to tell me!

chrismac1

It's unlikely the Tax Office will ask you any questions, they are too disorganised - unless you start volunteering information which is an inadvisable way of handling dealings with HMRC. If you simply call them and ask for a UTR, explaining you have a source of rental income, and then complete the returns and submit them (claiming every single penny of allowable expenses) you're then totally in the clear. You can advise your ex to do likewise and if he doesn't that's his lookout.