For those of you who don’t know, I am a tax person by day and a musician at weekends. I love both my jobs with equal measure and a few weeks ago I was lucky enough to play at a “Sounds of the 1960’s” festival, performing alongside several headline acts from back in the day.
The music scene in Essex is like one big extended family. I wouldn’t say that everyone knows everyone, but it’s not far away from that. The chances are that if I walked into a pub and a live band was playing, I would know at least one person on stage. It’s like that at the festivals too. Nine times out of ten the sound guys are the same fellas who provide the front-of-house for my band at larger venues.
It was in this rich theatre of colourful personalities that I bumped into a long standing musician friend of mine. He wasn’t playing at the festival but had offered to help out with getting the equipment on and off the stage between acts. I had waved when I saw him and a few minutes later he wandered over to ask who I was playing with and when I was due on. The conversation meandered along for a while and then he asked me if we could talk about tax for a minute.
I groaned inwardly because these conversations never bode well, and I do try and keep my tax head away from music at live events. But by now most of my musician friends know about the day job and, in truth, I’m always happy to help. My friend went on to tell me that he has a holiday home in the Algarve which is rented for most of the year. The property is in something of a state of disrepair but he makes a few thousand pounds a year after deducting expenses. Apparently this has been happening for about 9 years and he never realised that tax was payable on any profit he makes because, in his mind, the property isn’t in the UK. Someone had mentioned the tax position to him and he decided to ask me before going any further, which I am glad he did.
For those of you who read my blogs, you will be aware that I often extol the virtues of the various HMRC campaigns that are around and available for use in cases like this. HMRC recognise that there are many people who are not completely up to date or accurate with their tax affairs, and that a fair proportion of these people would love the opportunity to get straight without having to face a series of enquiries and searching questions. In my experience, it is the fear of “fessing-up” that puts people off and what they think will happen to them. HMRC, to their credit, have recognised this and have set up the Let Property Campaign for individuals who have received undisclosed rental income, and a Worldwide Disclosure Facility, which is suitable to deal with the foreign rental income that my friend received. As a firm we have submitted a vast number of disclosures using these facilities and HMRC has accepted each one with minimal fuss.
I explained everything to my friend and told him my Firm could deal with the disclosure from start to finish. All he needed to do was give me a schedule of the rental income received and a list of all the property rental expenses he pays each year. We would then sit down together and see what costs were allowable for tax, and consider if there are any other costs, such as the annual flights to and from the property. There is no managing agent and he does all the repairs and upkeep himself.
We had the review meeting in June and we’ve calculated the rental profit, which isn’t particularly high. We have also attributed some of our fee to the preparation of the rental accounts which reduced the profits even further. My friend’s day to day income isn’t particularly high so his income will only be taxed at 20%, and his final settlement, including interest and penalties, will be a few thousand pounds. We’ve registered for the Worldwide Disclosure Facility, and we’ve registered for Self Assessment because the property is still rented. We’ve already completed the current years tax return in draft and everything will be submitted and paid in the next few weeks.
If you are one of those people who has some undeclared income and wants to get straight with HMRC then it really doesn’t have to be as scary as you think it might be. I am always happy to have a chat with anyone who finds themselves in this position, and if I think I can help, I can explain what it would cost you in terms of fees and how long the process will take.
By Neill Staff, Partner