HMRC nudge letters are the gift it keeps on giving…
20 December 2023
Landlords are enduring challenging times with increased interest rates, potential reforms to tenancy agreements under the Renters (Reform) Bill and restrictions on the tax reliefs they can claim. HMRC has also used its data gathering powers to check the tax affairs of landlords from information received from the tenancy deposit schemes and Airbnb. It appears from HMRC’s latest nudge letter campaign that landlords are once again the target of the taxman.
The new campaign letter asks landlords to review the property pages of their 2021/22 self-assessment tax return and consider whether deductions claimed for repairs and maintenance do in fact qualify for tax relief. It is interesting to consider how HMRC selected the recipients, its letter advises ‘our data suggests that your expenditure is higher than others with a similar income.’
HMRC is likely to have used its CONNECT database to analyse the tax return data and produce statistical comparisons with other landlord’s tax return data. There are potential flaws to the information HMRC has gathered as it works on averages and does not look at selected cases individually for patterns or reasons before the letter is issued.
The timing of this latest campaign is not coincidental, as it provides landlords with time to amend their 2022 tax return before 31 January 2024 to avoid a HMRC enquiry. Importantly, it also provides the recipient with food for thought when completing their 2022/23 tax return, due for submission by 31 January 2024. Nudge letters are now an established part of HMRC’s compliance armoury and are used to educate taxpayers and help close the tax gap.
For any landlords who do identify non-qualifying repair and maintenance costs for 2021/22 and amend their return, any additional tax will be due immediately in addition to their 2022/23 liability falling due on 31 January 2024. At this time of year following the Christmas period, this will be unwelcome news and they may want to consider whether using a HMRC Time to Pay arrangement may help.
Any individuals or businesses who are in receipt of a HMRC nudge letter should consider taking advice from a tax professional before responding.
The new campaign letter asks landlords to review the property pages of their 2021/22 self-assessment tax return and consider whether deductions claimed for repairs and maintenance do in fact qualify for tax relief. It is interesting to consider how HMRC selected the recipients, its letter advises ‘our data suggests that your expenditure is higher than others with a similar income.’
HMRC is likely to have used its CONNECT database to analyse the tax return data and produce statistical comparisons with other landlord’s tax return data. There are potential flaws to the information HMRC has gathered as it works on averages and does not look at selected cases individually for patterns or reasons before the letter is issued.
The timing of this latest campaign is not coincidental, as it provides landlords with time to amend their 2022 tax return before 31 January 2024 to avoid a HMRC enquiry. Importantly, it also provides the recipient with food for thought when completing their 2022/23 tax return, due for submission by 31 January 2024. Nudge letters are now an established part of HMRC’s compliance armoury and are used to educate taxpayers and help close the tax gap.
For any landlords who do identify non-qualifying repair and maintenance costs for 2021/22 and amend their return, any additional tax will be due immediately in addition to their 2022/23 liability falling due on 31 January 2024. At this time of year following the Christmas period, this will be unwelcome news and they may want to consider whether using a HMRC Time to Pay arrangement may help.
Any individuals or businesses who are in receipt of a HMRC nudge letter should consider taking advice from a tax professional before responding.
Noel Mooney
Associate Director
AUTHOR
Noel Mooney
Associate Director
