UK Property Tax FAQ

Yes. If you are in receipt of property income of £10,000 or more (before deducting allowable expenses), you are required by law to file a self-assessed tax return.

Self Assessment (SA) was introduced in the 1990s. It puts the onus on taxpayers to “self assess” their tax liability. That means that it is the responsibility of the taxpayer to be aware of their obligations and whether they need to file a tax return.

Below is a list of circumstances which require the taxpayer to file a tax return. The list is not exhaustive:

• Self-employment
• Company director, minister, Lloyd's name or member
• Receipt of any of the following:
  • - income from savings and investments of £10,000 or more
  • - income from untaxed savings and investments of £2,500 or more
  • - income from property (before deducting allowable expenses) of £10,000 or more
  • - income from property (after deducting allowable expenses) of £2,500 or more
  • - annual trust or settlement income on which tax is still due (even if you're only treated as receiving this income)
  • - income from the estate of a deceased person on which tax is still due
• Receipt of foreign income that's liable to UK tax
• Annual income of £100,000 or more
• Claim of expenses or professional subscriptions of £2,500 or more
• Some less common reliefs, such as Enterprise Investment Scheme relief or relief on Venture Capital Trusts, can only be claimed by completing a tax return
• Capital Gains Tax is due
• Live or work abroad or aren't domiciled in the UK

The tax year ends on 5 April. If you are filing on paper you must file before 31 October following the end of the tax year. If you are filing online you must file on or before 31 January following the end of the tax year.

This is best illustrated with an example. Consider the tax year which started 6 April 2009 and ended 5 April 2010 (aka 2009/10 tax year).

POAs are estimates based on the prior year tax liability. So in the above example, the POAs for 2009/10 are both 50% of the liability for 2008/09. The POAs due for 2010/11 will both be 50% of the liability for 2009/10. And so on.

Yes. HMRC introduced new penalties effective 31 January 2012 which are more draconian than before:

If you pay your tax late then you will be subject to interest (accruing daily) and possibly surcharges. The interest rate is set by HMRC and is linked to the Bank of England Base Rate.

Surcharges are levied as follows:

Yes. HMRC has introduced a new penalty regime for inaccuracies. It works as follows:

Yes. Penalties can also apply in the following situations (not an exhaustive list):

• Failure to notify HMRC of chargeability to tax;
• Failure to keep adequate records.

It should also be noted that HMRC has introduced a special penalty for those evading tax using offshore tax havens. Penalties can be up to 200% of the tax at stake.

Finally, HMRC now also has the power to name and shame tax defaulters.

In most cases the answer is clear. This is question is pertinent only to contractors and is generally tied up with the application of IR35 as most contractors seek to use a Private Limited company as an intermediary to save on NIC and tax.

Where it is a relevant consideration, it can be a complex area and is not necessarily a tax law point but an employment law question. There are no hard and fast rules and this is evident from the fact that HMRC has lost many cases on employment v self employment before the courts.

IR35 is a piece of anti-avoidance legislation introduced c.1999. Its aim is to counter tax planning which aims to reduce NIC and tax by inserting a corporate entity between the taxpayer and the 3^rd party receiving the services.

Using such a set-up is perfectly legitimate in many circumstances; IR35 only seeks to counter those circumstances where there is disguised employment. This means that IR35 seeks to counter those situations where the taxpayer is in reality an employee of the 3^rd party not a self employed contractor.

In determining whether the reality is in fact one of employment, the employment v self employment tests above are what is relevant. If IR35 applies then the effect is basically to ignore the corporate intermediary and charge tax and NIC as if the taxpayer is an employee.

A sole trader is someone who carries on a business in their own name. Basically it means that the business is not conducted through a limited company.

The general rule is that expenses incurred wholly and exclusively for businesses purposes can be taken as a tax deduction.

In some cases, i.e. with capital items like plant and machinery, cannot be written off against income in one tax year. The cost is written off over several years. The mechanism for this is Capital Allowances – basically tax approved depreciation.

There is no statutory guidance on this. HMRC advises that you keep sufficient records to support any figures on your return for a minimum of 6 years after it is filed so if you are a self employed sole trader you will need to keep all invoices, receipts, bank statements etc. If you receive dividends you will need to keep all dividend vouchers etc.

As mentioned above HMRC can levy penalties for inadequate record keeping; this is an area of particular interest to HMRC at present and they intend to check 200,000 small business records between 2011 – 2015.

The general rule is that HMRC can open an enquiry into your Return anytime within 12 months after the filing date if the return is filed on or before the deadline.

If the return is late or amended then HMRC have until the quarter day next following the first anniversary of the day on which the return or amendment was made. Quarter days are: 31 January, 30 April, 31 July and 31 October.

After the enquiry window has closed, HMRC can only investigate your return if they can raise a “discovery” assessment. If there is no fraud or negligence the discovery window is 4 years. If there is negligence (carelessness) the window is 6 years. Otherwise it is 20 years.

HMRC can raise a discovery assessment if:

• There is a loss of tax; and,
• The loss of tax was brought about carelessly or deliberately by the taxpayer or a person acting on his behalf; or,
• The time limit for issuing a notice of enquiry into the return passed, or the enquiries were completed, the officer of the Board could not have reasonably been expected, on the basis of the information made available to him, to be aware of the situation mentioned in the first paragraph under this sub-heading above.

The underlined italic has been the subject of a lot of litigation – what do “reasonably expected” and “made available” mean? While the topic is too broad to cover here, in general terms HMR should be reasonably expected to know if there has been a full disclosure on the Return.

If HMRC cannot show this, then they cannot raise a discovery assessment and the taxpayer should have certainty of his tax position after the enquiry window closes.