Property investors who have received a letter from the taxman asking for a call about unpaid tax on income from property letting, then you need to speak to a property professional like Property Investment Expert.

Continue Reading

A self-employed man who filled in his own self assessment tax return for the first time has been fined £1,400 by the taxman for making a mistake in reclaiming overpaid tax.

He calculated he had overpaid £3,000 for the 2008-09 tax year and asked for the money back – the taxman agreed he was owed £1,000 and then slapped on the fine under new penalty regulations for making the error.

The new rules say that taxpayers face fines of up to 30% of tax owed for careless mistakes and up to 100% for deliberate or concealed mistakes.

About a third of a total 9 million self assessment taxpayers claimed a refund last year, according to HMRC.

The case highlights how important getting the right advice is for any taxpayer and especially investors with several properties who may be operating more than one business.

It’s easy to make a tax error because profits and losses from some properties can be set off against others in the same business category but not others.

For example, a property investor with several buy to lets in the UK can set off profits and losses of each house against the others but not against development properties or rental properties overseas.

HM Revenue and Customs won’t comment on individual cases but said fines reflect whether a taxpayer has taken due care and attention, and whether the mistake is deliberate or not, and whether records have been kept correctly.

Need self assessment tax help? Contact the Property Investment Expert tax service

Despite about 1.6 million phone calls to the taxman going unanswered every month, the figure is viewed as an improvement in performance, according to financial secretary to the Treasury Stephen Timms.

A new call answering system was introduced in June 2009 and in the 10 months to the end of March, about 16.4 million calls rung out – but the figure was 43.7 million – or 3.64 calls a month – in the year ending December 31, 2009.

HM Revenue and Customs claims prerecorded messages allow callers to find the information they need without speaking to operator.

Between last April to February, 5 million calls were handled by the automated service and the average time for calls to be answered was 1 minute and 29 seconds.

The average for the previous year was two minutes.

Mr Timms disclosed the figures in answer to a Parliamentary question.

New guidance to help claim overpayment relief for recovering overpaid income tax, capital gains tax (CGT), Class 4 NIC or reducing an excessive assessment was published today by HM Revenue and Customs.

This guidance covers both overpayments and excessive assessments. It deals specifically with income tax and CGT .

The rules for overpayment relief are intended to:

• Give a single route for persons to recover overpayments
• Bring the claims process into line with self-assessment claims
• Align time limits with those for other claims.

Overpayment relief applies from 1 April 2010 for all tax years.

The person must make the overpayment relief claim within four years of the end of the relevant tax year or accounting period.

There are transitional rules giving a longer time limit for income tax self assessment returns for the tax years 2004-5 and 2005-6.

The claim must be in the correct form and must state the amount that the person believes they have overpaid.

There are specific situations where overpayment relief is not available.

For example, a person can only claim overpayment relief if they have not had a reasonable chance to correct their tax liability any other way, by making or amending a self-assessment return or appealing against an HMRC assessment or amendment of their return.

As far as possible, disputes relating to overpayment claims are dealt with through a tribunal rather than by claims directly to the High Court.

Overpayment relief replaces the old error or mistake rules for individuals, partnerships and companies.

From 1 April 2010, it is not possible to make a claim for the old error or mistake relief for any period.

More about self assessment

Property investors who have bought and sold homes but failed to disclose the correct details on tax returns are the latest targets for HM Revenue and Customs.

The taxman is exploiting a data link with the Land Registry to cross-reference property transaction records with tax returns to highlight cases where the figures do not match.

Targets include:

• Property flippers who buy and sell their homes regularly who have not disclosed the profits as income and try and conceal the money they make with  private residence relief.

• Property investors who have sold buy to lets or second homes and tried to reduce the capital gains tax due by claiming day-to-day repairs as improvement costs.

Accountants across the UK are reporting an increase in both types of inquiry, with HMRC inspectors citing the Land Registry as the source of their information.

Chas Roy-Chowdhury, head of taxation at the Association of Chartered Certified Accountants (ACCA), said: “HMRC is definitely becoming more aggressive to find tax evaders and has become more proactive in the past year or so. It is not leaving any stone unturned.

“But it is important to keep in mind that HMRC needs to be reasonable in their approach as there can be a number of reasons for these types of discrepancies, for example, if the property is shared. There is also a difficulty in interpreting improvements and this can have an affect on the amount of CGT paid.”

Property flipping is classed as buying a property with the intention of developing or refurbishing for a quick sale at profit. The buyers tend to live in the property and claim it is their home while carrying out the building work.

They then sell at a profit and reinvest in another property.

The taxman argues flipping is really a property trading business, so private residence relief does not apply and income tax is due on the profits.

Many investors try and mask capital gains by claiming repairs to reduce their CGT.

Tax law says capital costs cannot be set off against day-to-bills nor vice versa, so they are disallowed. Costs that are OK are improvements like adding a conservatory, extension or garage that are still there when a property is sold.

Repairs or replacements like installing a new kitchen or bathroom are only capital costs when they are not like-for-like but upgrades -and even then not all the cost may be allowed.