Category: HMRC

House with a heart

Have you received HMRC’s ‘love letter’?

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Have you received HMRC’s ‘love letter’?

Have you declared your rental income? 

Lately we have seen an increase in HMRC asking people if they have received rental income. This comes in the form of a ‘love letter’ from HMRC and results in more and more people having to declare their rental income.

Connect 

The reason for receiving this ‘love letter’ is HMRC’s computer system “connect”. Connect draws data from all departments and connects you to every government system. It also looks at our digital footprint, snooping on our social medias, Ebay accounts and even Airbnb bookings. Using Artificial Intelligence (AI) the computer will asses our profiles and see if we could afford rental properties by cross referencing with your declared income on your HMRC tax account.

Social boxes coming from computer

‘Love Letters’ 

Red envelope and hearts

The ‘love letters’ we refer to are a direct result of HMRC’s Connect talking to its mates at the Land Registry. From this data they form a list of people that have sold property. If it is not listed as your main residence HMRC will put two and two together and ask if you have sold a second home and/or rental property. This will then be subject to capital gains tax and more!

Have you declared? 

If the sold property was used as a rental property, HMRC will then look to see if you have declared the rental income. In a lot of cases this has not been done and can go back many years. In a recent case of ours, we had to declare 10 years of rental income for a Husband and Wife.

‘My Mate Down The Pub’ 

Getting tax advice down the pub is not always a good idea. In a few cases, taxpayers have been under the impression that because the mortgage payments covered the rental income they didn’t have to declare the rental income. In reality only the interest is deductible. For higher earners being able to offset the basic rate relief is being phased out, turning rental income into profit and therefore tax payable.

Beeng moved into her partner’s flat several years ago, and decided to rent out her own property rather than sell it. Being didn’t think she was making a profit which needed to be taxed, because the rental income just covered the mortgage payments.
When working out her rental profit. Being needs to be aware that the only allowable expense for her mortgage is the interest amount of her mortgage repayment.
The interest amount of mortgage payments is restricted to the basic rate of income tax, irrespective of which income tax rate Being normally pays for other income she may have

HMRC

Take a look at HMRC’s website for more examples.

Our Advice 

If you have a rental property and need a ‘health check’ we would be happy to discuss and give you the options to declare the income and profit that you have been missing off of your tax returns. Declaring the error before the ‘love letter’ arrives will help your negotiations with HMRC and reduce any high penalties. 

No one wants a Tax Investigation.

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No one wants a Tax Investigation.

It is true that as business owners we don’t want HMRC asking awkward questions and taking up our precious time by visiting us on a routine (or not!) compliance visit.

This week two of our clients have been subject to compliance visits from HMRC, one for PAYE and CIS, and the other for VAT. Understandably, our clients in both cases were worried by a visit from HMRC and needed our support from start to finish.

PAYE Investigation

In the case of the PAYE compliance, which included CIS, we were able to speak to our client before the meeting, attend the meeting along with our client, and reply to HMRC’s request in order to close the enquiry. We dealt with the issues and questions raised in the meeting successfully and HMRC could see that we had a good handle on our client’s business. They have now closed the case without penalty or further tax charge.  Our client was very happy that we were able to attend and support them at the meeting as it gave them extra peace of mind.

VAT Investigation

The VAT visit was very similar. We briefed our client before the meeting and attended the meeting with the VAT officer. One item was picked up by HMRC and a small adjustment will be made on the next return. In this case HMRC were complimentary about our business set up and the service that we provide our client, especially in understanding the business from the client’s point of view. This client is also really pleased with the service and were reassured by the fact that we were able to attend the meeting and deal with any questions that came up.

We have you covered

We insure ALL of our clients to cover our fees for dealing with HMRC from start to finish in these situations.  We often have clients tell us that they are covered by The Chamber of Commerce or The Federation for Small Businesses, however the cover from both organisations does not allow us to deal with any investigation that may occur, and so our support is limited. It is for this reason that we took the decision to fully cover our clients for no additional charge.

We appreciate that no one wants a Tax Investigation, however if a client does have an investigation it is really important that we are there, as we can help the client to deal with HMRC effectively. In both cases this week HMRC didn’t find anything of significance and both of our clients were very happy with our service. They were especially happy that our fees for assisting with the visits are covered by the insurance policy benefit that we have taken on their behalf and that there was no extra cost to them.

Tax Building Blocks

Making Tax Digital – Are You Ready?

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Making Tax Digital – Are You Ready?

July 2019 marks the period that you have to submit your VAT returns using HMRC’s new Making Tax Digital (MTD) regime. Already Accountants, VAT registered businesses and HMRC are struggling to cope.

Take a look at Accounting Web’s report on how HMRC’s systems were already struggling in May – Read report here

If you have not addressed MTD you need to do this NOW!

Your accountant should have been in touch to make sure your systems allows you to send HMRC compatible VAT returns. You may have been offered a bridging software to read from Excel (or other non-compliant accounting products) to then transfer to HMRC. In our opinion this is a sticky plaster over an open wound and not a long term solution. You have probably been given this type of software because your accountant does not understand or is overstretched.

Our recommendation is that you use Xero or SageOne to manage your businesses finances. Both pieces of software are fully compatible with MTD. 1 Accounts are Making Tax Digital certified and can help you transfer your business over to software that will not only be compliant but save you heaps of time to.

You should make sure your accountant can help you through the process of transitioning you to online software, registering you for MTD and maintaining your VAT returns. HMRC have some guidance on their website we recommend reading – Read article here.

If your VAT return (period ending 30th June 2019) is not filed by the 7th of August 2019 you may get a fine from HMRC. It is unknown to us if HMRC’s systems will be able to cope with this months filings. Our advice would be don’t leave it till the last minute.