Low Rental Income

JodieR

My client is employed and rented out a property for part of 2010/11 making a small profit. She's not registered for self assessment. I've not done one like this before - do you just write to HMRC with the income details? from the guidance notes it sounds like they will just collect the tax due through her tax code, but it's past 31 Dec now so will this be possible or does she need to pay it now, and if so how?
Hope someone's more clued up on this than me!

Stan Bown

Hi there, rental income, even if it's a loss, requires the completion of the property pages of a self-assessment return. It's quite straight forward. Have a look at the HMRC property income manual, which is reasonably short and easy to navigate. A good place to start is here: http://www.hmrc.gov.uk/manuals/pimmanual/PIM1001.htm

Income, up to £4,250 for 2010/11, from renting a room in your own house is exempt. However, the tax payer can still elect to be assessed under property income rules, if they wish.

JodieR

Thanks Stan but there's now an exemption where if your 'turnover' from rental income is under £10k and your profits are under £2.5k then you don't need to complete a tax return, but you do need to still declare the income, I'm just not too sure how!

Stan Bown

Thanks, that's new to me. I'll check it out.

T.C.

JodieR wrote: »

Thanks Stan but there's now an exemption where if your 'turnover' from rental income is under £10k and your profits are under £2.5k then you don't need to complete a tax return, but you do need to still declare the income, I'm just not too sure how!

I have never heard of this - where did this information come from????

JodieR

http://www.hmrc.gov.uk/sa/need-tax-return.htm

about half way down this page. I found out because another client I've always done a tax return for got a letter saying he didn't need to complete a return any more and when I queried it I was told this information. That client made a loss on his property this year so I don't need to do anything for him, but I'm a bit stumped for the new client. Will phone HMRC tomorrow morning if no-one here knows.

T.C.

I am sure that would only apply if that was the only source of income though!

JodieR

No it doesn't - the client I got the letter about earns between £30k and £40k employment income every year, and when I phoned HMRC they knew this and confirmed that it's the way that it works now.

T.C.

Oh right, thanks for that. It could mean that one of my clients who is on benefits (incapacity benefit) and rents a house out making a very small profit won't need to keep filling out tax returns then! Thanks. I will make mental note of that one.

Dean

Hi Jodie

You're absolutely right with the new diminimus rules!

I have come across this in this exact instance. If the client informs HMRC each year of their taxable profits in written form the Revenue will adjust their tax code (form P2) accordingly and the underpaid tax is collect via their employment.

So how does the client get their taxable figure?! They can either tell the Revenue a figure or have an agent prepare an I&E account.

I can hear what you're thinking? "how is that simpler than sending in a tax return and clicking the box to collect the tax via PAYE" who am I to answer that? Monkey see monkey do!

Regards

Dean

JodieR

Thanks Dean - were they meant to tell HMRC by 31st December what their taxable figure was though as this is usually the deadline for collecting tax through a tax code? I would be happy to file a tax return for this client and they're happy to pay the tax upfront, but I'll not be able to get a UTR issued in time now. I'm wondering whether they should send a letter to HMRC along with a cheque to cover themself. And where would you send it? to their local tax office or a processing centre somewhere?

Dean

I think it is the 31st December same as NIC claims.

I think if they send a letter with the required unpaid tax to the local office the client probably won't get a penalty. Of course they could get a penalty and if they did I see that as fairly unreasonable on the Revenues behave!

Certainly don't submit a TR though. If you haven't got a UTR they'll fall foul of £100 penalty and as they don't meet the diminimus it's not required. So effectively sending a letter will save them £100!

Regards

Dean

JodieR

Thanks. Strictly speaking I'm guessing HMRC probably can issue some form of penalty as they could say that the client should have notified them by 5th October that they were receiving untaxed income and this I presume would have triggered a letter advising to notify them of the amount by 31 Dec, but hopefully a letter and cheque now will make them happy.

Dean

JodieR wrote: »

...but hopefully a letter and cheque now will make them happy.

Strictly speaking yes. However with the amounts involved ^^^ this should suffice.

Regards

Dean

T.C.

So, to clarify, if a client is putting in a TR anyway, it is still simpler to just declare the profit on that then!

PGM

JodieR wrote: »

Thanks. Strictly speaking I'm guessing HMRC probably can issue some form of penalty as they could say that the client should have notified them by 5th October that they were receiving untaxed income and this I presume would have triggered a letter advising to notify them of the amount by 31 Dec, but hopefully a letter and cheque now will make them happy.

Thanks for pointing this out Jodie, will come in useful!

Just to clarify, the reter, must notify the HMRC of them renting a property out and using this method by 5th Oct, and then notify them of the value by 31st of Oct?

Is it best to send a cheque, or will they amend your tax code for the following year?

JodieR

Update on this:

I've just spoken to HMRC about this. They don't want the client to send a cheque at all. They took the profit for 2010/11 and an estimate of 2011/12's profit and have amended her 2011/12 tax code today and asked that I send a letter to the Liverpool office with the actual figure for 2010/11.

So, if anyone else is in the same situation now or in the future it looks like it's best to notify HMRC as soon as you start renting the property so they can amend your tax code imediately.

Jodie

Monsoon

Thanks for the heads up - I have a few clients this may apply to.