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Recent HMRC activity and top tips

Nudge campaign

You may have heard about various HMRC  so-called “nudge” campaigns, which are, for want of a better word, “fishing” letters sent out on a wide scale,  designed to flush out taxpayers who have not been complying with the tax legislation and prompt (or “nudge”) them into taking corrective action.  The latest nudge campaign is for non-resident landlords.  There are two letters doing the rounds – one sent to non-resident corporate landlords who hold UK residential properties, and one sent to the tenants of such properties.

Landlord’s letter:

This refers to the obligation to pay ATED (annual tax on enveloped dwellings).  However, HMRC did not check its ATED database before sending the letters, so entities which are already registered for and correctly paying the ATED may have received the letter.

A sensible response would be to reply to HMRC pointing out that the appropriate registration is already in place (if indeed it is so!)

Tenant’s letter:

This letter is more of a cause for concern, as more often than not the tenant will not have any connection with the landlord and no idea about their status, and getting a nudge letter might frighten them into thinking they have done something wrong.  The letter tells the tenant that tax may have to be deducted from rent paid and ask for details concerning the rent paid when the tenant moved in and what the ownership of the property is.  The letter also warns that they should be deducting tax from the rent paid to the landlord. But this is only the case if the tenancy is directly with the overseas landlord and does not apply if a letting agent is engaged to deal with the rents (or if the tenant is living there rent-free). The bit in the letter explaining this fact is very short and may easily be missed, leading to confusion and alarm from the tenant.

A sensible response would be to pass the letter onto the letting agent to deal with in the appropriate manner.

HMRC terrorises tax payer – but taxpayer wins

Taxpayer Sebastian Cussens has won his appeal at the First Tier Tribunal to overturn assessments and penalties levied by HMRC. The background is that HMRC opened an enquiry into Mr Cussens’ tax affairs but he was apparently uncooperative and did not produce adequate documentation. HMRC issued assessments totalling a huge £272,840 and imposed penalties of a staggering £184,944.  This was because it had allegedly discovered that Cussens was trading as a second hand car dealer and had failed to declare profits for the last 12 years.

However, the FTT was concerned with HMRC’s handling of the case  because HMRC were unable to explain how they arrived at the assessed figures.  The tribunal could find no evidence that Mr Cussens undertook any trade in his own name and concluded that the assessments were “so wild, extravagant and unreasonable” that they were not permitted to be made under tax law. The Judge went so far as to say that “because the appellant was uncooperative and was sticking his head in the sand, [HMRC] decided to issue assessments almost “in terrorem” in a bid to persuade [Mr Cussens] to engage properly…”

The  moral of the story is that – as hard as it may seem to challenge HMRC – taxpayers should push back on assessments which are unreasonable and unsubstantiated.  Many years ago it was the practice of HMRC inspectors to encourage non cooperative taxpayers by issuing higher and higher estimated assessments.  However, under modern practice this will not wash and HMRC must be able to justify the amounts they are assessing.

Please click here to go back to other Taxing Times stories…

 

<May 2020>
MTWTFSS
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