HMRC Let Property Campaign – Where Are We Now?

Posted On: 04 Jun 2020

In September 2019, Amit Puri (Tax Director) shared an article regarding HMRC’s Let Property Campaign (LPC) statistics.  Following a further Freedom of Information Act 2000 request to HMRC, Amit now shares an updated version of his article which includes the latest LPC disclosure figures from HMRC.

Introduction:

Making any kind of disclosure to HMRC is a nerve-wracking experience. As experienced tax investigation specialists we fully understand this. We make it our mission to keep up to date with the latest stats and processes being undertaken by HMRC to reduce the uncertainty and worry for our clients – offering them peace of mind.

Background:

As previously outlined in my original article, the Let Property Campaign (LPC) is a HMRC initiative which offers individuals who let out residential property in the UK and abroad with the opportunity to bring their tax affairs up to date by means of a voluntary disclosure through an online portal. Provided a full and complete disclosure is made, there is no need to meet HMRC face-to-face or engage in numerous rounds of correspondence.

Last September, I outlined the latest statistics and overview of the LPC campaign in relation to historic tax liabilities – and I am pleased here to offer updated figures following a further Freedom of Information Act 2000 request to HMRC.

LPC Disclosures:  The Facts and Figures

As at the 13th May 2020, HMRC confirmed that a total of 58,754 LPC disclosures had been made. This is an increase of 5,183 disclosures – 9.7% – in just a little over 10 months (53,571 at 2 July 2019).

Interestingly, this covers the Covid-19 pandemic induced economic slowdown. We are unsure as to whether most of these disclosures were submitted before coronavirus hit or whether people have taken the opportunity to get some of their financial affairs in order where they had more time on their hands.

With regards to the revenues secured by HMRC as result of the LPC disclosures, HMRC has confirmed that the 58,754 disclosures led to a “yield” totalling £220,792,528 (previously: £196,198,304):

  • Tax £173,156,223 (previously: £153,737,703)
  • Interest £21,168,196 (previously: £18,727,993)
  • Penalties £26,468,109 (previously: £23,732,608)

The additional disclosures represent an increase in total revenues of approx. 12.5%.

What do these figures mean?

  • While the numbers (almost £221 million in total to date) look significant in absolute terms, this only equates to approx. £3,757 per disclosure. Personally, I still feel this is low for such a campaign where property letting has been publicised as a major risk area in relation to tax loss for the Exchequer, warranting time and resources being used to address taxpayer behaviours and the historic liabilities.
  • The £3,757 number is even lower in terms of real cash collected, because HMRC state, “HMRC’s compliance yield has a number of components including: underpayment of tax; the prevention of revenue loss from incorrect or fraudulent repayment claims; and an estimation of the effect our interventions have on customers’ future behaviour.”
  • For example, the hypothetical effect of reducing tax loss claims seems to have been factored in, as well as estimated tax in future years where tax returns would not have been received at the time. To be clear, HMRC has confirmed that “there is not a direct read across between compliance yield and the revenue HMRC collects as the yield components that protect from revenue loss or provide future revenue benefit are not cash to collect.”
  • We specifically asked how many of the disclosures were based on “deliberate inaccuracies” in tax returns or were “deliberate failure to notify offences” where tax returns needed to have been submitted. HMRC has confirmed that still, only 0.5% (285 disclosures) of the 58,574 LPC disclosures made were at the ‘most serious’ end of the behavioural spectrum.
  • It follows that the number of taxpayers potentially recorded on HMRC’s Publishing Details of Deliberate Defaulters (PDDD) scheme list can only have been minimal. One of the key criteria for being named and shamed publicly every quarter in national newspapers, is that the underlying behaviour leading to the tax and penalty being payable must be ‘deliberate’. So, 99.5% of all the LPC disclosers automatically escaped this additional, non-financial sanction, because their historic tax liabilities arose as a result of mistakes despite taking reasonable care with their tax affairs, or where their actions were considered careless (but not deliberate).
  • HMRC has again confirmed that no LPC disclosures at all have resulted in an entry on their deliberate defaulters list. This means that the group of 285 disclosures met the balancing criteria for avoiding publication, i.e. the penalties involved ‘tax‘ of no more than £25,000 and the disclosers earned the maximum reduction in penalties by fully disclosing details of the historic defaults.

Targeted Approach?

We were also keen to understand how many people HMRC had written to, prompting them to consider making LPC disclosures. HMRC has confirmed that to date it has sent 105,470 letters in connection with the LPC initiative. Of this number, 83,437 people were specifically “prompted” to make disclosures. We consider the latter to relate to bulk intelligence being obtained and analysed, and therefore HMRC’s targeting appears to have been relatively precise. It follows that over 20,000 letters are likely to have been sent to targets without being properly cross checked against existing tax records.

Although some may call this approach lazy, perhaps there was evidence of more than one property being owned, but no definitive intelligence as to whether rental incomes were being earned, hence the low number of letters. Anecdotally, I still hear many professionals say that they know of people with property rental portfolios who aren’t registered with HMRC and so don’t pay tax on profits, but who will only address the historic tax problems if HMRC wrote to them!

HMRC Response:

Lastly, we did attempt again to get behind HMRC’s risk assessing process in order to fully understand the sources of information and intelligence they utilised which determined that over 105,000 recipients should receive letters.  Regrettably, HMRC declined again to share this information with us, advising instead:

“We can confirm HMRC holds information to answer this question. However, it is being withheld under section 31(1) (d) of the Freedom of Information Act (FOIA) because disclosure would likely undermine HMRC’s compliance activity, and would therefore prejudice the assessment and collection of tax. Generally, HMRC does not disclose the specific ways it tackles tax non-compliance in identifiable groups, as this may make it easier for non-compliant members of that group to avoid proper scrutiny. Releasing the requested information could allow opportunistic individuals to fraudulently evade liability in an attempt to pay less tax. Section 31 is a qualified exemption which means that we must consider whether the balance of the public interest favours withholding or disclosing the information.

We accept that there is strong public interest in ensuring that HMRC is accountable for its activities and is as transparent as possible about the way it applies its resources. Publishing the information requested would, on the face of it, reassure the public that our activities are fair and robust.

However, there is of course a strong public interest in HMRC being able to enforce the law properly so that the tax burden is shared equitably. Anything that might influence or assist those considering, or intent on, not paying the right amount of tax at the right is not in the public interest. Evasion and avoidance unfairly shift the tax burden onto honest taxpayers and that is not in the public interest. Anything that puts at risk our compliance activities could undermine public confidence in the tax system. This could damage the general climate of honesty among the overwhelming majority of taxpayers who use the system properly and that too is not in the public interest.

On balance we conclude the public interest to favour maintaining the exemption at section 31(1) (d) of the FOIA.”

This was again disappointing because as advisers we wanted to share the insights with fellow professionals, clients and contacts, so that they know they ought to be thinking about X, Y and/or Z, in the hope that potential disclosers were more forthcoming. However, HMRC’s points regarding the need to avoid causing prejudice and not wanting to fuel opportunistic people provide reassurances.

Next Steps:

For advisers and potential LPC disclosers, there is good news. The online disclosures initiative still has no closure date. The open-ended nature of the facility means that it is still a good time to review one’s letting activities and ensure taxes on rental profits are paid. Taxes on any gains on disposals of properties should also be considered where appropriate.

The LPC provides a relatively smooth process for professional, amateur and novice/first-time landlords who owe tax through letting out residential property, in the UK or abroad, the opportunity to bring their UK tax affairs up to date in a simple way.

How we can help?

At Lancaster Knox, we always advocate the need to seek out professional tax advice and use practitioners who have experience in making tax disclosures and handling tax disputes, to secure the best possible terms for clients.

HMRC provide a basic online LPC questionnaire to help check if one might need to disclose unpaid taxes under this initiative which can be a good starting point. But, appropriate professional tax advice is always recommended to protect one’s best interests.

Access the basic online LPC questionnaire.

If you would like to discuss a potential LPC disclosure with Amit please get in touch today – we would be delighted to hear from you.