Individuals who own investment properties but who have failed to disclose rental profits under self-assessment face a number of issues.
An unprompted disclosure, i.e. one where the taxpayer volunteers information, will be capped at 4 years worth of back-dated taxes. A prompted one will generate a 6 year look back. This is in line with legislation, but is something HMRC are asking in an effort to highlight to taxpayers upfront. Interestingly, when completing the disclosure form online, HMRC only allow you to tick 3 tax years from 2014/15 to 2016/17, so we assume they will pick up the other years from the schedules the taxpayer will be required to upload.
When it comes to the calculations, not only will a taxpayer have to calculate the profits/losses, but also the income tax due, interest and penalties. The disclosure requires the individual to determine which penalty percentage to use in the calculations. If HMRC do not agree, they will reject the disclosure.
Presuming the cases are always careless (i.e. not deliberate) there are 2 levels of ‘failure to notify’ penalties.
- Taxes late by more than 12 months = 20% to 30%
- Taxes late by less than 12 months = 10% to 30%
The interest can be calculated using HMRC’s calculator.
A lot is being put on the taxpayer in these disclosures, rather than simply telling HMRC about the income.