How do i put this right?

TheQuietMan

Hello, this is my first post so i'll try and make as much sense as possible!

My situation is this: my wife and i have owned and rented out a property since October 2008. The rental income is £360 pcm and the mortgage interest is currently £119 pcm (has been higher prior to reverting to the lender's SVR).

BUT (and this is where i need help) we did not know we had to pay tax on this income as i thought (stupidly) it was below the allowable threshold. I know that my ignorance is no excuse and i take full responsibility for whatever the consequences will be, however it was a genuine mistake on our part and in no way did we intentionally try to hide this from HMRC.

I only realised when the topic came up during a casual conversation i was having with someone on Friday evening and since then i have been frantically searching the website for information on how to put this right. I have searched the HMRC website but don't have a clue where to start. Do i phone them up and explain, write to them or fill in a form?

I desperately want to put this right and pay what i owe but i don't know how to. I haven't slept since Friday worrying that we will have a massive penalty to pay as well as a huge tax bill.

Any advice on how to resolve this will be massively appreciated.

Thanks

00ec25

there is no form, put bluntly does not matter how but you need to contact them:
- if you phone be aware it can take hours on hold before you are connected, collective wisdom suggests calling at 8am has the best chance
- if you write be aware HMRC can, at times, have huge backlogs that take weeks to open and reply

As you do not give any other costs, one trusts that you have complied with the other legal requirements of being a landlord? Eg: annual gas safety inspection and certificate, deposit protected in a scheme and proscribed information issued within 30 days.

By the time you have deducted all your eligible costs you may have a relatively small net profit per month and so the interest due on your unpaid tax may be smaller than you think. Alternatively you could work on the basis no one has as yet grassed you up so you may well get away with it forevermore

TheQuietMan

Thanks for the reply. Yes we conform to all other aspects of being a landlord. We have the gas checked annually by British Gas. Our other related monthly expenses total about £50 for buildings insurance and boiler cover.
I would rather be honest with HMRC because I have been worried sick all weekend about what they would do if they found out themselves. I saw on their website they have set up a special unit for this type of thing.
What penalties are we likely to face?

Thanks

antrobus

TheQuietMan wrote: »

.....Any advice on how to resolve this will be massively appreciated....

If you don't voluntarily disclose the fact that you owe tax on your rental income and HMRC finds out about untaxed income and launches an inquiry or investigation into your tax affairs, you could face stiff penalties and a possible criminal conviction. So volunteering makes sense, which you can do by calling the Let Property Campaign Hotline on 03000 514479 week days 9am to 5pm.

http://www.theguardian.com/money/2013/oct/23/renting-property-self-assessment-tax-return

antrobus

TheQuietMan wrote: »

....What penalties are we likely to face?...

You will have to pay interest on the back tax due. Penalties however, are likely to be minimal if you volunteer and comply with whatever deadlines HMRC then give you for supplying the info.

TheQuietMan

Thank you very much for taking the time to reply Antrobus.
Yes I would like to pay what's due before they catch up with me which is what inevitably happens but i'm nervous about how they will receive it. Will they believe that it's a genuine error on my part?
All the rental income goes through my bank so its not like we've been trying to hide it.

Thanks again

TheQuietMan

Also what are they likely to ask for? Bank statements, mortgage statements, P45's etc?

antrobus

TheQuietMan wrote: »

..Will they believe that it's a genuine error on my part? .....

HMRC won't care about why you failed to declare in the past. All they'll care about is that you've fess'd up and are willing to cough up some cash and have thus saved them some bother.

antrobus

TheQuietMan wrote: »

Also what are they likely to ask for? Bank statements, mortgage statements, P45's etc?

They will want you to complete Self Assessment returns for each year from 2008-2009 onwards. They will only request sight of supporting evidence if they have reason to.

ACEJ_2

I am in a similar situation and and also worried sick about it as a tenant has just put in a benefits claim which I am worried may alert the HMRC. I was in the process of frantically compiling the information to submit via the Let Property Disclosure Campaign but have realised that through my ignorance for the tax years prior to 2011/12 I also did not disclose the income on my Tax Credits Form. (Up till then I had assumed the rent would come under the Rent a Room scheme which does not have to be disclosed on this form but later realised due to the layout of the house it would probably not and so should have been declared). Even if the HMRC has provided a convenient way for me to rectify the income tax situation will this cause me additional penalties for getting my Tax Credits form wrong. In term of money owed this is neglegible because I am not employed and this is basically my only taxable income and has always been well below my personal allowance. I do not think the additional income would have made much difference to my tax credits awards either. It is the penalties for declaring innacurate information on my Tax Credits form that I am more worried about now. My current tenant is due to leave within 3 weeks and I have no plans to re-let for the forseeable future. If I declare now to HMRC re income tax could I be landing myself in a more difficult situation with The tax credits. For peace of mind I really want to put this right and pay any penalties due but are the HMRC really as understanding as you've indicated Antrobus? I am worried if they request further information I may not be able to provide it as the renting has always been an ad hoc casual arrangement with rent generally received in cash which I have used to live on and maintain the house. If I cant provide the info will they need to investigate me? Help re: the tax credits please?!!!

TheQuietMan

Although I don't know the answer to your problem, I hope it works out well for you and they are understanding. I'm going to phone the Let Property Campaign number tomorrow and take the first steps to making amends with the tax man!!
I read on one of the threads that you can pay through paye. Don't know how/if I can do that. I don't know any accountants therefore I hope the self assessments are straightforward to complete!!