Fines for self assessment on rental income

anxiouscharlie

Hi can anyone please help...so upset atm. Partner just received a penalty for not filling in a self assessment tax return for rental income. We had no idea she even had to fill one in. We spoke to someone at HMRC last year as we discovered she would be liable for tax and were told they were upping the code of her wages and paying it though income tax. At no stage was anything mentioned about a tax return. We sold the house last year but we’ve just received two penalties in the post. One for tax year 2017-2018 (£100) but another for the previous tax year amounting to £600!!!!!! We had no idea they were mounting up this way and to this much...surely the first we hear about it can’t be a first bill for £600 from 18 months ago?!! Where’s the £100 bill we should have received this time last year? Which would have alerted us and then we would have known to avoid any fines and fill in one for this year? She has also been out of work for 9 months (and I was also unemployed for 6 of that) so this will financially cripple us. I’m at my wits end, can anyone help?!

G_M

anxiouscharlie wrote: »

Hi can anyone please help...so upset atm. Partner just received a penalty for not filling in a self assessment tax return for rental income. We had no idea she even had to fill one in. We spoke to someone at HMRC last year
* so in 2018?
as we discovered she would be liable for tax and were told they were upping the code of her wages and paying it though income tax.
* did HMRC write to you confirming this?
* did HMRC write to you with a new tax code?
* was the income tax adjusted?

At no stage was anything mentioned about a tax return. We sold the house last year but we’ve just received two penalties in the post. One for tax year 2017-2018 (£100) but another for the previous tax year amounting to £600!!!!!!
* so these tax years pre-date your conversation with HMRC

We had no idea they were mounting up this way and to this much...surely the first we hear about it can’t be a first bill for £600 from 18 months ago?!! Where’s the £100 bill we should have received this time last year?
* lost in the post? Filed under 'to do'? I don't know

You have two choices:
1) contest the charges on the basis of the written documentation you have from HMRC confirming you didnot need to complete a self-assessment fom due to the tax code adjustment, or
2) pay

See
https://www.gov.uk/tax-appeals/penalty

AdrianC

anxiouscharlie wrote: »

Partner just received a penalty for not filling in a self assessment tax return for rental income. We had no idea she even had to fill one in. We spoke to someone at HMRC last year as we discovered she would be liable for tax and were told they were upping the code of her wages and paying it though income tax. At no stage was anything mentioned about a tax return.

Without a tax return, how did you think HMRC would know how much tax was owed on your residential lettings business income?

We sold the house last year

In the 2018-19 tax year?

CGT?

but we’ve just received two penalties in the post. One for tax year 2017-2018 (£100) but another for the previous tax year amounting to £600!!!!!! We had no idea they were mounting up this way and to this much...surely the first we hear about it can’t be a first bill for £600 from 18 months ago?!! Where’s the £100 bill we should have received this time last year?

You appear to be expecting HMRC to be psychic.

When you start any business, it's your responsibility to ensure you're aware of the implications of that. ANY income from any non-PAYE employer is always going to need declaring, with a few exceptions.

ACG

Chances are HMRC would not have known the property was let out.

On income there are generally 2 ways to be taxed:
PAYE (Pay as you earn),
Self Assessment - which puts the onus on you.

This is one of the reasons why I suggest against renting properties out (aside from bad tenants), it is a business. You are earning money, you need to be aware of your responsibilities - tax, insurance, tenants rights and so on.

You may be able to sort out a payment plan.

Dazed_and_confused

Partner has several months still to file the 2018:19 return so the focus needs to be on the previous two years.

Any adjustments to her PAYE code are only provisional, it is the completed return which finalises things for each year. If her tax code was amended to include a provisional profit figure then that might minimise the tax due but doesn't prevent the need for a return.

You/she may be even more upset when you read about the rules for claiming (or not!) finance costs such as mortgage interest against the rental income.

anxiouscharlie

Addressing your points in turn:

GM:

1) yes we spoke to HMRC last year and nothing was said about a tax return
2) no there was no written confirmation as far as I am aware
3) I will get her to check her payslips but I am pretty sure they said it was only going to be a changed tax code from this year and she was made redundant in September
4) lost in the post by whom? We have not received ANYTHING by HMRC, the first thing we have received is 2 letters in the post today with “late payment penalties” amounting to £700. My point is if we had received a notice this time last year for £100 we would have then known we had to do one, and avoided extra penalties. We didn’t purposefully avoid doing it, or ignore penalty notices! why would we have done that?!

Adrian C:

We did not have a “residential lettings business”, in fact the irony is we didn’t make any profit at all. We barely broke even. We had no choice but to let the property out due to personal circumstances. We did not set out to abuse the system!!

I don’t know what CGT means. And we sold the house in Feb 2018.

Dazed and confused:

There is no 2018-2019 self assessment to fill out, we sold the house in February 2018.

Please elaborate regarding mortgage interest against rental income. I don’t know what you mean? And why will be upset? I’m not really finding this a laughing matter to be honest. £700 is a hell of a lot to us.

To be entirely honest I came on here for help and advice, where I feel we have been naive I do not believe we have been vindictively trying to “beat the system” like other people I know to avoid tax. What I am stating is that surely we can’t go from £100 to £700 without any prior warning or it is fair that it’s been 18 months since the “first offence” without any acknowledgment by the HMRC whatsoever?

Keep_pedalling

CGT = Capital gains tax. As the property she sold was not her residence then your partner may have a CGT liability on any profits from the sale.

Do not assume she does not need to complete an 18-19 return. Unless she has informed HMRC that she is no longer receiving rental income and HMRC have informed her that she no longer needs to file one, they will still expect one filed, and she does not want to pick up any more fines.

Fire_Fox

anxiouscharlie wrote: »

Addressing your points in turn:

GM:

1) yes we spoke to HMRC last year and nothing was said about a tax return

Adrian C:

We did not have a “residential lettings business”, in fact the irony is we didn’t make any profit at all. We barely broke even. We had no choice but to let the property out due to personal circumstances. We did not set out to abuse the system!!

I don’t know what CGT means. And we sold the house in Feb 2018.

To be entirely honest I came on here for help and advice, where I feel we have been naive I do not believe we have been vindictively trying to “beat the system” like other people I know to avoid tax. What I am stating is that surely we can’t go from £100 to £700 without any prior warning or it is fair that it’s been 18 months since the “first offence” without any acknowledgment by the HMRC whatsoever?

You ARE being given help and advice. Act on it rather than trying to defend yourself or argue the toss. Have you read the Tenancies in Eng/ Wales 'sticky' on the main page of this sub, or any guidance on the HMRC/ government website?

Yes you were in the business of letting, regardless of why you got into it or whether that was profitable or not.

It is not HMRC's job to tell landlords which forms to complete or how to run their business generally. Landlords are expected to research themselves, or to consult other professionals (eg. accountant, business advisor, letting agent) to ensure they comply with the reams of legislation.

If you are in financial difficulties post your Statement of Affairs (see their 'sticky') on the 'Debt-free Wannabe' board.

dancing_star

anxiouscharlie wrote: »

What I am stating is that surely we can’t go from £100 to £700 without any prior warning or it is fair that it’s been 18 months since the “first offence” without any acknowledgment by the HMRC whatsoever?

It's far from clear from your posts what has actually happened, but can you check the letters and see if your partner is being chased by the 'let property campaign'?


https://www.gov.uk/government/publications/let-property-campaign-your-guide-to-making-a-disclosure/let-property-campaign-your-guide-to-making-a-disclosure


If you are then there are different forms to fill out and send to HMRC rather than late submitted tax returns.



To be honest and although this is a money saving site you might be better off approaching a (qualified, chartered) accountant and getting them to deal with it - preparing the returns on your behalf. I'm one and I have acted for a couple of clients caught by the Let Property Campaign. They hadn't a clue about what they were meant to submit and when, and what they could claim as expenses.

Dazed_and_confused

Please elaborate regarding mortgage interest against rental income.

The ability to claim finance costs, typically mortgage interest payments, as an expense against the rental income is being phased out under a sliding scale.

You used to be able to claim 100%, then 75%, 50%, 25% and it will soon be 0%.

You can claim a tax credit on the part not eligible to be claimed as an expense which means for some people it doesn't make any difference overall to the tax payable. But it makes a big difference for some, particularly as your "profit" will be higher in the first place.

You should Google changes to landlord residential finance costs.

And act on the sensible advice others have given on this thread.

babyblade41

Sadly this is a mistake so many people make .. unfortunately the "I didn't know that" is not a defence .

HMRC are usually very helpful if you ask