HMRC since 2017 has adopted a different approach to collecting tax on undeclared income from UK individuals. This is by sending letters and inviting them to bring their tax affairs up to date with any undeclared income. One of their methods of doing this is through the “Income from Short-Term Property Letting campaign”.
Certificates of Tax Position in relation to recent HMRC letters also include ‘Letters to non-resident companies which hold or held an interest in UK property, Let Property Campaign & ‘letters to individuals with overseas assets, income or gains’.
Before sending these letters to targeted individuals, HMRC collects data from online service providers such as AirBnB. HMRC also receives information from overseas tax authorities under Automatic Exchange of Information (AEOI) agreements about UK residents where financial accounts and investments are held overseas. Some additional risk assessment is also carried out by HMRC.
The letters suggest making a digital disclosure; however, you should seek professional advice before taking any action as other approaches may be better.
At Heighten, our team of experts can assist you with complying with and tackling the HMRC Short-term Lets campaign.
What counts as short term property letting income?
Short-term property letting income is generated through the practice of renting out a property, such as a house or an apartment, for a short period of time, typically ranging from a few days to a few weeks or months. This type of rental income is often generated from travelers, tourists, and businesspeople who need temporary accommodation. Such income is also earned by property owners when they are not using their properties.
Short term property letting can be done through various platforms such as:
- Airbnb
- Booking.com
- HomeAway
- VRBO
- Expedia
- Vacasa
- Homestay.com
- Atraveo
TripAdvisor is a travel review site that also allows hosts to list their properties for short-term rentals. It offers a range of accommodation types, from hotels to vacation rentals.
These platforms allow property owners to list their properties, set prices, and communicate with potential guests. Income from all these lettings is taxable and should be reported on an individual’s personal tax return along with other income.
How can Heighten help you with HMRC income disclosure for short-term property letting One To Many (OTM) Campaign?
We understand that HMRC’s aim in sending these letters is to prompt recipients of the letters to review their affairs and encourage those who need to rectify mistakes to make voluntary disclosures to HMRC. Depending on your individual circumstance, there could be several approaches to consider before responding to HMRC.
Heightens team of accountants, tax advisors, and legal partners can assist you in dealing with your HMRC short-term property let disclosure enquiry smoothly, efficiently, and confidentially.
Our unique tax enquiry handling approach includes the following steps:
- Check the position – We will establish if a disclosure needs to be made or not and, if so, what is an appropriate statement to make.
- Respond to HMRC’s letter – We will communicate to HMRC whether or not there is anything to disclose.
- Choose the appropriate Disclosure method – You will be advised HMRC a specific disclosure method in HMRC OTM letter, however, they cannot compel a taxpayer to use any specific method. Depending on your circumstance if their suggestive method is not appropriate, we will convince HMRC to use alternative methods.
- Additional advice – Considering your specific circumstances, we will assist you in seeking additional legal and specialist advice from a suitably qualified specialist, if necessary.
- Explanatory letter to HMRC – If no disclosure is needed, a response by letter instead of a person completing the “certificate of tax position” mitigates the risks of further action being taken by HMRC. We will assist you in this regard.
- Calculating your liabilities – If there is any reportable income, we will calculate the right amount of tax and other liabilities you may owe to HMRC and will do the related reporting and submission.
- Complete solution – There are instances, we here HMRC may prolong the enquiry, we can assist you until the matter is resolved.
Here’s how you can deal with a the letter received from HMRC
If you have received a letter from HMRC with the subject of ‘Your income from short-term property letting’ this means that HMRC records show you may have earned income from short-term property lettings but have not told them. This also means you may owe them taxes.
If this is the case, HMRC will also advise you to complete a ‘certificate of tax position’ and send it back to them within 30 days. Signing this certificate is your declaration to confirm that the information you have given on the certificate is correct and complete to the best of your knowledge and belief. And you understand that deliberately making a false statement to evade paying tax is a criminal offence and would mean you may be investigated and prosecuted. You should immediately seek professional assistance if you are not sure about any aspect of this disclosure.
You will be required under your disclosure to choose an appropriate statement from the following options:
- I need to bring my tax affairs up to date. I will declare all my outstanding UK taxes using HMRC’s Digital Disclosure Service.
- I don’t need to bring my tax affairs up to date. This is because I believe I have correctly declared all my income from the property on my tax return(s) as shown below.
- I haven’t declared my income from the property and the reasons for non-declaration.
What do I need to tell HMRC If I have income from short term property let?
- Complete a Certificate of Tax Position and send it to HMRC.
- Make online Digital Disclosure to tell HMRC that you need to disclose this income.
- Work out and pay any tax you owe within 90 days of receipt of an acknowledgment letter.
What do I need to do If I don’t have any short-term property let income to declare?
- Complete and send a Certificate of Tax Position or
- Send an explanatory letter confirming your tax position
You are still required to complete the declaration form or inform HMRC using alternative methods, where no income is to be reported. If HMRC does not receive your response, they will follow up. So not responding at all will attract more attention from HMRC.
What happens if I do not respond to HMRC short term property let OTM letter?
- HMRC may open an enquiry into your tax affairs
- You may have to pay additional late payment interest and penalties.
HMRC follow-up may involve formal assessment for the additional tax they consider due. Alternatively, HMRC may open an investigation.
Responding to the initial letter may therefore mitigate the risks of further action being taken by HMRC.
Do I qualify for a tax-free short-term property let rental income?
Yes. you may be able to get tax-free personal allowances if this is the only source of income. Tax-free allowances may mean paying less or no tax on your property income.
Tips to avoid making a false declaration for Short-Term Property Letting
Making a declaration by signing the Tax Position Certificate could have serious consequences if done wrong. Therefore, if you have received such HMRC One to Many letters, it is important to understand your position before making any decision.
Although the declarations in the “certificate of tax position” are similar, if not completely identical, to those you make on the personal self-assessment tax return, there are two important differences.
Unlike your declaration on your personal tax return, there is no legal obligation on the individual to complete the “certificate of tax position” and send it back to HMRC; and the declaration is not restricted to a particular tax year thus It applies to all tax years.
In the most recent version of the certificate, you are given 3- 4 options to choose from. However, it is possible that more than one of the statements may be accurate depending on your circumstances. Furthermore, your short-term property rental income may cover more than one tax year. It, therefore, may not be possible to:
- Provide the right statement as tax matters may be complex and
- Include the full explanation in a little space provided on the declaration form provided by HMRC.
This concludes that there is no legal obligation for the individual to complete and return the certificate to HMRC. It is likely to be preferable to respond by letter, particularly where you have complex tax affairs. Or need to tick more than one of the certificate’s boxes, as this will enable more information/explanations to be provided to HMRC about their tax position.
HMRC will accept a response by letter as an alternative should you choose not to complete the declaration. Given the serious consequences of making a false declaration, including ticking the wrong box, it is likely to be preferable to respond by letter to HMRC and not complete the certificate of the tax position, unless your tax affairs are very straightforward.
Heighten team can guide the most appropriate way to respond if you have received one of these letters from HMRC.
FAQs Section
What prompts HMRC to trigger an enquiry under One To Many (OTM) Letters and disclosure campaign?
Since 2017, HMRC has sent letters to UK individuals who they have identified as having received income or gains from overseas accounts or investments that they may have to pay UK tax on. These are prompted by information HMRC receives from:
With data from overseas now being constantly received under AEOI agreements, HMRC is adopting an approach of sending out batches of letters at regular intervals and this approach is expected to be continued for the foreseeable future.
What regimes fall under the UK Automatic Exchange of Information agreement?
The UK has AEOI agreements under four regimes:
What is a ‘certificate of tax position’ Income tax disclosure form?
If a company or individual needs to make a disclosure to bring its tax affairs up to date, HMRC will send a short form to make a declaration, this form is known as a Certificate of tax Position.
This certificate only provides the option of confirming that this will be done using the disclosure facility detailed in the HMRC One to Many letters. It also compels the taxpayers to tell HMRC how the error occurred as well as confirming that the error will not be repeated.
The taxpayer (company or an individual) is often given other options too. This helps to explain why they did not declare all the income, gains, ATED liability or other tax liabilities subject to investigation. This certificate is also any opportunity to confirm that taxpayers believe their tax is correctly declared.
What are the consequences of making a false declaration to HMRC enquiry?
If HMRC triggers an enquiry, the Individuals or the company’s representatives are asked to sign and make a declaration to confirm that the information they provide on the certificate will be “correct and complete to the best of their knowledge and belief.
The dishonestly making a false statement to evade paying tax is a criminal offence and subject to investigation and prosecution.
Can I avoid signing the ‘certificate of tax position’ declaration form?
Yes. Depending upon your circumstance, you can side-step signing the disclosure. Alternatively, you may consider sending HMRC an explanation by letter. HMRC can accept a response by letter instead of a person completing the “certificate of tax position”.
Does responding to the short-term letting letter means the enquiry is closed?
HMRC can make no guarantee that responding to the letter will avoid a compliance check or investigation. HMRC may, after considering the response, need to ask follow-up questions to clarify points, for example.
Where possible, try to respond within the time provided by HMRC. However, if it is not possible or practical to respond fully to the letter within their timescale consider advising your accountants and tax advisory to contact HMRC either by telephone, email, or letter to agree a more realistic timescale with them.
How can I get help from Heighten Accountants for short term property let enquiry?
At Heighten, we understand that tax can be complicated, so we want to help you get it right. If you need any help, please contact us using the form below.
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