Question submission Date: November 2023
Full question: “Help! I haven’t been declaring rental income on my buy-to-let, what can I do to make things right, and will I get a penalty?”
If you’re earning £1k or more in property rental income, you should be reporting this to HMRC via an annual self-assessment tax return, but, for some, time can slip away and you might have missed the deadline, or perhaps it’s something you simply didn’t know you needed to do.
Whatever the reason, we’re not here for the should have and would have. Let’s talk about what you can do now, to declare the income you’ve received so far and get on top of any liabilities to HMRC before we move on to what you can do going forwards to avoid being in this situation again.
So, what can you do now?
Firstly, you’ll need to work out exactly how much income you’ve received for each of the tax years passed. It may be that you’ll need some support to calculate this, as you’ll need to take into account deductions of any allowable expenses in order to calculate the taxable profit. Your accountant will be able to help you do this.
You’ll need to declare to HMRC. In a normal situation you’d be doing this via annual self-assessment tax returns and, as this’d be late, you’d be paying late filing penalties for each tax year. Or worse, if HMRC have discovered you have undeclared rental income before you come forward you could be subject to tax investigations as well as facing higher penalties.
BUT…it needn’t be that scary. Coming forward now and voluntarily disclosing this income will stand you in a better position to mitigate any penalties, and it just so happens that currently HMRC have just the right platform for you to do this.
Their Let Property Campaign is a disclosure service for landlords to declare their income and pay tax for prior years, under simpler and more reasonable terms. The let property campaign has been running since 2013 and there is currently no end date set for the scheme. The campaign is for individuals only (not for Ltd companies, trusts etc) and is only available to declare income and tax for residential property.
How to disclose rental income via the Let Property Campaign
The first step in the let property campaign is to contact HMRC to tell them that you intend to use this service – we recommend doing this asap. You’ll then need to disclose the income and the tax you owe and make payment within 90 days.
Step 1 – Contact HMRC to tell them you’ll be making a disclosure under the LPC. If your accountant is doing this for you, they can contact them on your behalf.
Step 2 – HMRC will post you a letter with your unique Disclosure Reference Number (DRN) and a Payment Reference Number (PRN0). Look out for this and keep it safe as you’ll need this to make your disclosure and payment and tell your accountant your reference if they’re dealing with this on your behalf.
Step 3 – Submit your disclosure by completing the Digital Disclosure Service form. In order to do this, you’ll also need a Government Gateway login – so have this to hand, but if you haven’t already got one you can create this when you start. If you have a Unique Taxpayer Reference (UTR) where you may have previously registered for Self-Assessment, you’ll need this and VAT number if applicable as well as you NI number, and DRN. To make the payment you will need you PRN – payment should be made at the same time as the disclosure, but no later than the 90 day submission deadline.
Step 4 – HMRC will acknowledge your disclosure and confirm whether it has been accepted.
And going forward?
Once you’re all up to date, it’s a case of submitting annual self-assessment tax returns – here we’ve put together a brief guide to explain how these work and the process to follow. We offer a personal tax return service from £225 + VAT – see our Landlord and Property services for more details.
