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Tax Year Deadline is 31st January 2013

Tax Return Deadline Looms For LandlordsDespite all the awareness campaigns and TV advertising, Her Majesties Revenue & Customs (HMRC) repeatedly attempt to tell us that completing a self assessment tax return doesn’t have to be taxing!

However, as anyone who has ever completed a self assessment tax return will tell you, the evaluation of personal income for the tax year and the amount of time needed to complete a self-assessment form, either on paper or online can be very considerable.

When managing a single property or declaring a growing rental property portfolio, it can be hard work to set aside the time needed to tick all the right boxes.

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The importance of accuracy in your tax return

We all know that we have to provide detailed answers to official questions, especially on any Government forms, so why have Her Majesties Revenue and Customs (HMRC) objected to the degree of sublime, honest and fair accuracy provided by one witty respondent. 

HMRC Don't Possess A Sense Of Humour!

HMRC Don’t Possess A Sense Of Humour!

In response to the question;“Do you have anyone dependent on you?”

One man answered: “2.1 Million illegal immigrants, 1.1 Million crackheads, 4.4 million unemployable Jeremy Kyle scroungers, 900,000 criminals in over 85 prisons, plus 650 idiots in Parliament, and the whole of the European Commission”.

HMRC has returned the Tax Return to the man in Evesham, London UK after he apparently answered one of the questions incorrectly.

HMRC stated the response he gave was unacceptable.

The man’s response to HMRC was: “Who did I miss out?”

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Property Buyers Who Beat Stamp Duty Deadline Are Laughing All The Way To The Bank

Property Buyers Who Beat Stamp Duty Deadline Are Laughing All The Way To The Bank

Her Majesties Revenue and Customs (HMRC) have reported that there were 466,000 home sales in the first six months of 2012.

The data released by HMRC shows that there were 10% more residential property sales, in the first 3 months of the year, than in the same period of 2011 when there were 425,000 residential property sales, and 2% higher than in the second half of 2011 when there were 458,000 residential property sales.

The increase in residential property sales had been widely attributed to the end of the stamp duty holiday in March 2012, and now the HMRC data has confirmed it.

Until the end of March this year, first-time buyers purchasing property under £250,000 were not required pay the stamp duty tax.

The residential property sales figures support the HMRC data, with sales dipping 11% between the first and second quarter of the year.

Many property pundits had predicted a flurry of activity from first-time buyers before the end of the stamp duty holiday in March, but the increase in the amount of First Time Buyers taking positive action and purchasing property was greater than many expected.

The notable increase in prospective first-time buyers in the first three months of this year, eased drastically following the closing date for the stamp duty holiday and now residential property sales interest from first time buyers has waned compared to 10 years ago due to the lack of affordable mortgage finance available to them and the large amount of money needed to be able to put down a deposit on residential property, often up to 50% of the property’s purchase price.

First Time Buyers, who have finance in place, are like property investors, they want to put their money in and invest in property regardless of stamp duty or any other form of tax.

It’s almost as if they know that there is money to be made from property

Buy to let landlords who own rental properties in the North East, Yorkshire, East Anglia and London, should be aware that they will be among businesses targeted by six new HM Revenue & Customs (HMRC) taskforces.

The Association of Residential Letting Agents (ARLA) report that HMRC are likely to focus on private rented sector (PRS) landlords providing temporary accommodation and landlords of Houses of Multiple Occupation (HMO’s) although specific details on the scope of the taskforce have yet to be announced.

It is expected that the taskforce will initially focus on private sector landlords in specific areas, but if the taskforces are successful, their remit could be easily extended to cover the whole of the UK.

In 2011/12, HMRC launched 12 taskforces with up to 30 more set to follow in 2012/13.

The taskforces are a result of the Government’s £917m spending review investment to tackle tax evasion, avoidance and fraud which aims to raise an additional £7bn each year by 2014/15

HMRC are using specialist teams and sophisticated techniques to gather information from across Government departments, and other sources including press and internet advertisements, universities and colleges, to identify individuals who are not paying sufficient tax and the chances of going undetected are increasingly remote.

It is not just unpaid income tax that HMRC are investigating, landlords providing temporary accommodation, perhaps to seasonal agricultural labourers, students or even homeless people, may find that a sizeable VAT liability is incurred.

Some landlords may not realise that VAT is chargeable on temporary accommodation as HMRC tend to treat it in the same way as hotel or guest house accommodation.

Landlords may not be registered for VAT when they should be and so could face a back-dated VAT claim.

The HMRC taskforces undertake intensive bursts of activity in specific high risk trade sectors and locations in the UK.

Exchequer Secretary, David Gauke, said: “HMRC is on target to collect more than £50 Million (GBP) as a result of the taskforces launched in 2011/12. We have made it clear that we will not tolerate tax evasion. Everyone needs to pay the taxes they owe in full. We are determined to crack down on the minority who choose to break the rules. It is not fair that at a time when most hard-working people are paying the right tax, others are trying to get out of paying what they should.”

HMRC’s Director of General Enforcement and Compliance, Mike Eland, said: “These six new taskforces will bring together specialists from across HMRC to tackle tax dodgers. If you have paid all your taxes you have nothing to worry about. But deliberately evading tax you should be paying can land you with not only a heavy fine but possibly a criminal prosecution as well”.

A landmark tax tribunal case has ruled that owners of holiday homes who let them out will be able to claim business property relief and reduce their Inheritance Tax (IT) bills.

This is in contrast to Buy-To-Let properties which are not treated as businesses, despite pressure from groups such as the Residential Landlords Association (RLA).

HMRC had tried to categorise holiday lets with other Buy-To-Let and rental properties, which attract 40% IT on the owner’s death.

However, a tax tribunal dismissed the taxman’s argument that furnished holiday lets should not be considered a business for IT purposes.

It also argued that relief should only be given when the owner had ‘substantial involvement’ with the holidaymakers, and that an ‘intelligent businessman’ would not consider holiday lets to be investments.

Following the ruling, owners of holiday lets will now be able to claim business property relief, which in turn provides relief from IT.

Although the ruling concerned a UK property, it could have implications for those who let properties overseas.

Stephen Barratt, private client director at accountants James Cowper, said the ruling was particularly interesting as there was no clear evidence that the owner in this case had had substantial involvement with the holidaymakers.

Barratt said: “While HMRC can be expected to take their arguments to the Upper Tier Tribunal, as it stands the decision is good news and could open the door to a flood of claimants who have been awaiting the verdict. It could also give people greater certainty in planning their affairs.”

Mortgage approvals, residential property sales and first time buyer numbers increase

Is the UK property market making a comeback?

January figures from a variety of trusted and respected sources offer a major boost for the UK property market as mortgage approvals, first time buyer numbers and residential property sales all increased during January.

Data gathered from the Council of Mortgage Lenders (CML), British Bankers’ Association (BBA), National Association of Estate Agents (NAEA) and HM Revenue and Customs (HMRC) is viewed as a major boost to the UK property market.

UK property buyers have been taking advantage of the two-year stamp duty exemption due to end in March 2012, with the number of First-Time Buyers (FTB’s) registering with estate agents also being the highest since May 2011.

The British Bankers’ Association (BBA) say that, 38,092 applications were approved in January, 34% up on the same time last year, and the highest figure seen in two years.

The National Association of Estate Agents (NAEA) figures show that 23% of overall property sales in January were made to First-Time Buyers, a rise from 21% in December, marking the third consecutive monthly increase.

Mortgage lenders have claimed that one of the driving forces behind the increase in activity has been the imminent end of the two-year stamp duty holiday for first-time buyers.

The Council of Mortgage Lenders (CML) reported that the £10.5 Billion (GBP) loaned in the form of mortgages during January 2012 was the sixth month in a row that the year-on-year figure has risen, and overall mortgage lending in January was up 10% on a year ago.

Despite general consumer caution around borrowing, first-time buyers have flocked to get on the property ladder, showing stamp duty was a major deterrant.

NAEA President, Wendy Evans-Scott, said: “The figures suggest that stamp duty is a key factor for those on tight budgets who are considering a property investment”.

Overall residential sales across the UK property market increased from 5% per branch in December to 6% in January.

The number of residential properties sold in the UK was 12,000 up on January 2011 and also at its highest level for four years.

HM Revenue and Customs (HMRC) figures showed that a total of 64,000 property transactions went through during January, up on the 52,000 deals in January 2011 and the best start to a year since 2008’s tally of 79,000.

David Dooks, BBA statistics director, said: “January saw the high street banks approve more mortgages for house purchase than of late, despite low household confidence, as some people try to complete transactions before the stamp duty holiday ends in March.”

All in all, this is great news for the UK property market and a warning sign to property investors that they are no longer the only people buying property.

Her Majesties Customs & Revenue (HMRC) is set to expand spot-checks to include landlords and small business owners across the UK in 2012.

UK Landlords and small business owners need to be prepared for an unwelcome knock on the door and a potential investigation into their business activities, by the TAXMAN!

HMRC is planning to investigate thousands more landlords and small businesses in 2012, and is expanding its investigations on several fronts.

The Business Records Check regime, trialled in selected areas of the UK in 2011 will expand its remit to the whole of the UK.

HMRC initially aimed to target 50,000 UK small businesses but have since lowered their expectations to target around 20,000 small businesses and landlords in 2012.

HMRC planned to take on around 90 extra staff in order to help it conduct its investigations, suggesting that it considers the checks to be an important priority.

The purpose of the unannounced visits is to ensure that businesses have kept sufficient records, and that those records back up their tax returns, and that could mean potential trouble for a large number of small enterprises.

Landlords and small business owners that are found to have kept insufficient or inaccurate records could be fined – heavily!

UK landlords have often mused over their immunity to such investigations, until the end of 2011, when the Revenue announced the establishment of a new task force specifically charged with investigating landlords in the North East of England and North Wales, and these investigations will now be extended across the country as part of the Revenue’s continued drive to clamp down on tax evasion, leaving UK landlords with no doubt over their position.

UK landlords are legally obliged to keep comprehensive records detailing rental income and related expenditure. Landlords must keep these for at least six years following the end of the tax year to which they relate. Accurate record-keeping is the most important way in which landlords can protect themselves.

UK landlords should ensure the accuracy of their tax returns. HMRC has dished out fines for relatively minor infractions, and it is therefore important that a landlords tax return is fully supported by detailed records.

Mark Lawton, 45, from Town Moor in Doncaster, who acquired a £2million property portfolio, including luxury properties in Tenerife and across South Yorkshire, through fraud has been jailed for two years at Sheffield Crown Court yesterday.

Investigations revealed that Mark Lawton, 45, from Town Moor in Doncaster had committed a series of frauds from which he amassed a significant property portfolio. He owned 17 properties in Tenerife and across Doncaster, which were rented out, but for which he didn’t declare any profits. He also lied about his financial circumstances to obtain a loan by deception, as well as providing false income details in order to claim the education maintenance allowance for his son.

Although Lawton also owned the extensive property portfolio he had claimed that his family’s small tanning salon business only made him an income of around £10,000 per year. HM Revenue & Customs (HMRC) estimate that Lawton had defrauded the taxpayer out of £65,000 in unpaid taxes alone.

Lawton was caught when HMRC seized 10,000 illegal cigarettes which he had been selling and £50,000 in cash stored at his home and business premises. He was found guilty of fraud and failing to pay tax on his business profits.

Lawton pleaded guilty to charges of cheating the public revenue, evasion of excise duty and possession of criminal property (£50,000 cash). He was sentenced yesterday to 24 months imprisonment for cheating the public revenue, three months imprisonment for the evasion of excise duty – sentences to run concurrently. £50,420 cash was forfeited to the Crown for the charge of possession of criminal property. Lawton was also ordered to pay £10,000 in costs.

Lawton’s wife Christina was convicted of fraudulently claiming the education maintenance allowance for their children. The couple’s accountant Joanne Outram, 42, from Rossington was also convicted of helping the couple to prepare false documentation, to facilitate their claim for the education maintenance allowance payments.

Peter Hollier, Deputy Regional Director of Criminal Investigation for HMRC said:

“Lawton made a significant effort to hide his business dealings from the authorities. He enjoyed the benefits of our public services and lived a lifestyle that many families work hard to achieve, but his activity was stealing vital public revenue. It is only fair to those hard working families that he has been brought to justice.”

Sentencing Mark Lawton yesterday His Honour Judge Kelson QC commented: “You and your wife were living well beyond your declared means. What you declared to the Revenue was far short of the correct figure – therefore you were enjoying a better lifestyle than that of honest people.”

The Judge also passed comment sentencing the couple’s accountant Joanne Outram stating: “You are a qualified accountant, a professional person and you did this for personal gain by keeping the custom of your client. The involvement by professional people by making claims on the state erodes the public confidence.”

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Her Majesties Revenue & Customs is set to mount a court challenge to determine the legality, or otherwise, of stamp duty tax avoidance schemes.

Central to the challenge will be the use of limited companies to buy properties, and then sell them to individuals – something which does appear to be completely legal.

Essentially, the purchaser sets up a Special Purpose Vehicle, a company or a trust with a property as its sole asset. The purchaser then buys shares in the company and is subjected to a tax rate of just 0.5%.

There are many companies offering stamp duty tax avoidance: a Google search yielded over 3,200 results.

The taxman’s move follows this year’s Budget when Chancellor George Osborne announced that he would be clamping down on stamp duty avoidance, whilst law firms have also warned that HMRC is on the prowl.

HMRC estimates the tax avoidance schemes have cost it millions in lost revenue. It is investigating 1,200 people it suspects of having underpaid stamp duty by a collective total of £35m, whilst it will also go after others who have avoided the tax altogether.

The many schemes that claim to legally exploit stamp duty loopholes frequently charge fees of around half the amount that would have been paid in tax.

It is thought that a number of property investors have set up a limited liability company to buy the property to sell back to the individual.

An HMRC spokesperson said: “The schemes rely on an interpretation of law that produces an outcome different from that envisaged when the law was enacted, and that HMRC does not accept.”

Many Law firms have also warned against avoidance schemes of Stamp Duty Land Tax (SDLT).

Ian Montgomery, a solicitor at Boodle Hatfield, said: “There is a growing belief that it is possible to avoid paying stamp duty on the purchase of a property or land, but unless particularly aggressive tax planning is undertaken that is just not the case. It is a common misconception that it is possible to purchase a property using a company and avoid stamp duty. When a property is purchased through a company, whether based offshore or in the UK, it pays the same rate as if it were an individual. SDLT may be avoided by future purchasers when the company decides to sell the property. This is done by the owner selling shares in the company rather than the property itself, but SDLT will be paid on the initial purchase.”

Stamp duty on the purchase of shares stands at 0.5%, rather than the higher rate levied on property. If the company is based offshore, the purchase of shares is exempt from stamp duty entirely.

People who try to reduce stamp duty by paying separately for fixtures and fittings may have to prove to the taxman that what they paid for these assets did not exceed their true value

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Her Majesty’s Revenue & Customs (HMRC) is mounting a legal challenge to stamp duty tax avoidance schemes set up for home buyers.

Central to George Osbourne and the Taxman’s challenge will be the use of private limited companies to buy properties, and then sell them to individuals – something which is currently completely legal.

Essentially, the purchaser sets up a Special Purpose Vehicle, (SPV), a company or a trust with a property as its sole asset. The purchaser then buys shares in the company and is subjected to a tax rate of just 0.5%.

A Google search yielded over 3,200 results of companies offering stamp duty tax avoidance.

HMRC’s move follows this year’s Budget when Chancellor George Osborne announced that he would be clamping down on stamp duty avoidance, whilst law firms have also warned that the Taxman is on the prowl.

HMRC estimates the tax avoidance schemes have cost it millions in lost UK revenue.

It is investigating 1,200 people it suspects of having underpaid stamp duty by a collective total of £35 Million (GBP), whilst it will also go after others who have avoided the tax altogether.

Thousands of websites offer schemes that claim to legally exploit stamp duty loopholes. The schemes frequently charge fees of around half the amount that would have been paid in tax.

Loopholes include the well-known dodge of paying an artificially high price for fixtures and fittings so that the price of the property itself falls below a certain threshold; or setting up a limited liability company to buy the property to sell back to the individual.

An HMRC spokesperson said: “The schemes rely on an interpretation of law that produces an outcome different from that envisaged when the law was enacted, and that HMRC does not accept.”

Ian Montgomery, solicitor at Law firm Boodle Hatfield, said: “There is a growing belief that it is possible to avoid paying stamp duty on the purchase of a property or land, but unless particularly aggressive tax planning is undertaken that is just not the case. It is a common misconception that it is possible to purchase a property using a company and avoid stamp duty. When a property is purchased through a company, whether based offshore or in the UK, it pays the same rate as if it were an individual. SDLT may be avoided by future purchasers when the company decides to sell the property. This is done by the owner selling shares in the company rather than the property itself, but SDLT will be paid on the initial purchase.”

Stamp duty on the purchase of shares stands at 0.5%, rather than the higher rate levied on property. If the company is based offshore, the purchase of shares is exempt from stamp duty entirely. So, on a residential property valued at £2m, the purchaser could thus save £90,000 from purchasing the shares in a UK company holding the property as opposed to purchasing the property direct.

People who try to reduce stamp duty by paying separately for fixtures and fittings may have to prove to the taxman that what they paid for these assets did not exceed their true value.

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