I thought practitioners would find the following comments instructive. They arose from a recent exchange between me and the Let Property Campaign team this last week.
The story so far
We submitted a declaration on behalf of a client under the Let Property Campaign. HMRC wrote to me to query three items:
- That the interest calculations were incorrect,
- That the penalties offered were incorrect, and
- There was an error in the rate of income tax used in one year’s calculations.
I decided to call HMRC to resolve the issues
In like order the resolution of the various matters was:
- We had used HMRC’s online calculator to estimate interest due and were informed that this sometimes produced inaccurate results. The officer spoken to was helpful and with the use of a separate “special” calculator, that only he had access to, it was agreed that interest charges paid were marginally higher than they needed to be.
- Regarding penalties, I was prepared for a time-consuming appeals process, but my fears were groundless. The officer confirmed that penalties offered in year one of the disclosure were too high, and in years two and three required an upward adjustment of just 5%.
- For the tax year 2016-17, we had applied the higher 40% income tax rate to rents disclosed and deducted a small basic rate tax credit based on disallowed finance charges. Accordingly, if the tax offered was expressed as a percentage of income disclosed the percentage rate was marginally lower than 40%. HMRC’s algorithms were not happy. To move matters along I agree to adjust the numbers so they would pass muster.
The upshot of the conversation was an agreement to resubmit the client’s offer at an amount that was £40 more than the tax initially offered.
It is difficult to estimate the cost to HMRC of this seemingly pointless process. If systems have been designed to check Let Property Campaign submissions, then surely it would have been a simple matter to quantify a de minimis limit, say a £200 error level, below which submissions should be accepted?
What this experience does highlight is how driven HMRC have become by online system checks, and how their staff are powerless in the face of these controls.
A business would not be run in this way. When and if human intervention becomes necessary, the costs of reaching agreement with taxpayers or their advisers can quickly outpace any recovery of additional revenue.
This does not bode well in my opinion for the roll-out of MTD.