How to avoid a letter from the taxman
Dreading a letter from the taxman? There are ways to soften the blow.
(Advice from Elizabeth Colman - www.timesonline.co.uk)
If you are worried that you may be one of the 80,000 buy to let owners that the Revenue & Customs is targeting, there is plenty you can do before the letter lands.
You should contact your mortgage lender to find out if you have an interest-only mortgage or, alternatively, if your monthly payments repay any of the capital borrowed in addition to the interest on that amount.
If your buy to let mortgage is entirely interest only, then you are probably paying the right amount of tax. If your lender informs you that there is a capital repayment element in your mortgage, then you may be paying too little tax.
The Revenue is likely to look more favourably on those who seek to rectify any shortfall in their tax bill, so it is a good idea to make an appointment to see a tax inspector or at least speak to them on the phone.
Coming forward does not automatically mean you will face financial penalties or prosecution, and it is at the tax inspector’s discretion how big a penalty you may be charged, if any, and over what period of time you have to pay back any outstanding tax. For this reason, it is better to approach the Revenue first in attempt to show willingness.
Provided that any error was not deliberate (for example, if the terms of your mortgage were so complicated that you had only just realised you were also paying off some of the capital) you may walk away with no more than a bill for the unpaid amount and a slap on the wrist. But you will need to supply all financial records covering the period when incorrect tax was paid, for a minimum of the past six years.
If you have been told in the past that you incorrectly calculated your deductions, or had previous discussions with the Revenue on the topic, it is likely that you will be charged penalties and interest. Penalties are calculated as a percentage of the full amount of unpaid tax, and a penalty of 100 per cent can apply. In most cases your tax inspector has the discretion to decide if you will be charged both penalties and interest. He can also help you to work out the tax bill.
Those who are likely to be fined and charged interest can apply for a discount on the amount under a limited offer from the Revenue. The offer, which is on the table until June 22, is part of a scheme to encourage voluntary disclosure by those who owe tax on offshore bank accounts.
If the Revenue deems that you are eligible for the scheme, your penalties will be reduced to 10 per cent of the tax owing, but you must then repay the full amount by the end of the year. You can apply for the scheme by visiting the Revenue & Customs website. Again, you will need to supply records going back six years.
If you have set out deliberately to defraud the taxman you are likely to face prosecution and it is advisable to seek legal as well as accounting advice. Be aware that the Revenue is permitted to investigate your tax affairs dating back 20 years and can issue an assessment for unpaid tax over that period.
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