Let Property Campaign Disclosures – Latest Statistics

Posted On: 30 Sep 2019

Following on from a recent article by Tax Director, Amit Puri, regarding the current state of play with HMRC serious civil tax investigations, Amit continues the analytical theme with a look at the Let Property Campaign statistics. This follows a Freedom of Information Act 2000 request to HMRC.

The Let Property Campaign (LPC) provides 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 usually no need to meet HMRC face-to-face or engage in numerous rounds of correspondence.

Making any kind of disclosure to HMRC is a nerve-wracking experience. As experienced tax investigation specialists we understand this, and in a bid to provide peace of mind for our clients we continue to keep up-to-date with the latest statistics and processes from HMRC.  Here I am pleased to share my thoughts and insights regarding LPC disclosures in relation to historic tax liabilities.

LPC Disclosures:  The Facts and Figures

HMRC has confirmed that a total of 53,571 LPC disclosures have been made (as at 2 July 2019). We note that other articles have, in the past, referred to 50,000 and 60,000, but perhaps these figures correspond with the number of taxpayers registering their intentions to disclose with HMRC, but then failing to actually carry through with them.

With regards to the revenues secured by HMRC as result of the LPC disclosures, HMRC has confirmed that the 53,571 disclosures led to a  “yield” totalling £196,198,304:

  • Tax £153,737,703
  • Interest £18,727,993
  • Penalties £23,732,608

While the numbers (almost £200 million in total to date) look significant in absolute terms, this only equates to approx. £3,662 per disclosure. Personally, I 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 £3,662 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 only 0.5% (262 disclosures) of the 53,571 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 very small. 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 confirmed that no LPC disclosures at all have resulted in an entry on their deliberate defaulters list. This means that the group of 262 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.

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 100,015 letters in connection with the LPC initiative. Of this number, 81,147 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  almost 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.

Lastly, we did attempt to get behind HMRC’s risk assessing process in order to fully understand the sources of information and intelligence they utilised which determined that  approx. 100,000 recipients should receive  letters.  At the time of writing, HMRC sadly declined 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 time 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 is disappointing on the one hand, because as advisers we wanted to share the insight with fellow professionals, clients and contacts, so that they knew they ought to be thinking about X, Y and/or Z, in the hope that potential disclosers were 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 currently 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. We would 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 also provides a basic online LPC questionnaire to help check if one might need to disclose unpaid taxes under this initiative. It can be a good place to start, but appropriate professional tax advice is always recommended to protect one’s best interests.

Access the 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.