Can I pay for tax advice that transfers liablity to them if advice is wrong?

scarletjim

I have a couple of slightly unusual points with regard to rental income, and I believe that the advice I have been given on here is correct, but it seems that HMRC does not have precise guidelines written down on the two issues concerned. If I pay for tax advice and pay for the people giving the advice to then do my self assessment return, are they liable to pay for any additional tax incurred if HMRC decides to disagree with the way we have done it? I'm not doing anything dodgy at all, I've just heard several stories on forums of over-zealous tax inspectors not allowing something that the majority do allow, and I'd happily pay some cash for the reassurance that any issues wouldn't be my problem...

ILW

No, but you may have a claim if you can prove negligence.

suso

Your tax is your responsibility. No accountant will do a return and pay the extra tax due if either they make a mistake or if they act on your instructions.

You can go to a accountant that offers insurance against a enquiry, all this means is that any extra work incurred by them is at no extra charge (because you have paid more in the first place) if HMRC rule you owe the tax then you pay it.

Eventually you pay for what you get, this is a free forum, you say the advice here is correct, but you want to pay for advice and believe if they get it wrong they are liable, it doesn't work that way.

You are liable for the return, you are liable for the tax.

scarletjim

I appreciate what you are saying, I absolutely agree that my tax is my responsiblity, but if an expert can take on the liability for that responsibility for a fee, then surely that makes sense from both sides? If I knew tax inside out, I'd be inclined to advertise such a service. The whole point of tax experts is that your average guy like me isn't one, so those who are could surely make some extra cash out of it? I.E. 'I will charge you this much for my advice, and this much for completing your tax return, but also I'm so confident in my understanding of tax law that if you pay an extra £100 I will guarantee that my understanding of tax law will be aligned with that of your inspector, and if not then I will pay the difference myself'.

From what you say, it seems this isn't available - but if I was a tax expert, and confident in my own ability / knowledge, it seems like easy money and a win-win situation, so I'm surprised that this isn't readily available.

jimmo

Never heard of such a scheme.

However, from looking at your other posts on the house buying forum you seem to have 2 areas of doubt.

Rent a Room

If the annual rent you receive from letting a room in your home is below the limit, currently £4,250, you are exempt from tax.

If the rent received exceeds the limit then your taxable profit from Rent a Room is added to your profit from your (other) rental business.

See paragraph 7 in the Overview section here

http://www.hmrc.gov.uk/manuals/pimmanual/PIM4001.htm

If you take in a second lodger you can still use Rent a Room but the £4,250 limit still applies. Either both lettings are in Rent a Room or both are out.

See
Two Sources in the Same Residence here

http://www.hmrc.gov.uk/manuals/pimmanual/PIM4012.htm

Mortgage Interest.

See example 2 here

http://www.hmrc.gov.uk/manuals/bimmanual/BIM45700.htm

scarletjim

Huge thanks - that's one of the most useful posts I've ever 'received' on here.

Example 2 on the mortgage bit isn't quite the same though - there he is getting a BTL mortgage on the property to be rented out, not on the property in which he himself lives. But other web examples seem to suggest my plan is ok.

But it does seem that I can allow a fair proportion of the mortgage on my new house, and it does seem that I can treat my single person RaR separately from renting out my flat. The only bad news is that, if I took on another lodger, I'd have to either take RaR on my own property or not, no half and half, but that's fine. So, if I've understood correctly:

With lodger in my house and my flat rented out, I can treat the two separately.
With another lodger, I could do it on RaR basis, but the exemption would apply to the total income from both lodgers, with no expenses deductions allowed - but the flat could still be treated entirely separately.
Is that right?

Thanks for reviewing my other posts on the house forum - much appreciated

jimmo

Example 2 comes under the general heading “
Withdrawal of capital from a business”.

Its something that the tax professionals easily understand but impossible to gauge whether others will.

It’s a bit abstract but think of yourself as a person and your lettings business (the flat) as 2 separate entities.

You have, effectively, sold the flat to the business at its open market value at the date the lettings commenced. So the business now owns the flat and owes you an amount of money on an interest free mortgage.

When you bought your house you were perfectly entitled to tell the business that you want the money it owes you. That forces the business to borrow money from elsewhere.

In buying your house you take out a new mortgage, but it is a joint mortgage between you and your lettings business. You, personally, have paid for your new house with money the business has repaid you and topped that up with the balance of your personal share of the mortgage. The business has repaid you what it owed you but replaced its debt to you with its share of the joint mortgage.

Therefore the interest that the business has to pay on its share of the joint mortgage is a legitimate cost of the business and an allowable deduction.

Does that make sense?

With Rent a Room I think you’ve got it.

scarletjim

Makes perfect sense, I just didn't realise it worked like that - but now I do. Thanks for taking the time to explain so carefully.