Tax problems don’t always arise because someone has deliberately ignored their responsibilities. Sometimes a taxpayer has simply struggled to understand what’s required of them, and over several years an oversight can turn into a substantial and complicated HMRC matter.
This case, handled by ATS Accountants, shows why resolving that kind of situation takes more than filing a few missing tax returns.
Client details and certain facts have been changed or withheld to protect confidentiality.
The problem
The client came to us after HMRC had raised assessments for undeclared rental income covering a significant number of earlier tax years. By then, it was no longer just a question of calculating rental profits. We had to:
- reconstruct historic rental income and expenses over a long period
- analyse the figures separately for each property
- deal with earlier years that included both profits and losses
- consider how the property income interacted with other income and tax already deducted
- address the fact that the client’s appeal was outside the normal time limit.
There was also an important personal factor. The client had a longstanding, professionally assessed learning difficulty that affected how they processed written information and managed complex paperwork, and they hadn’t fully understood the tax reporting requirements for their rental properties. That didn’t remove their tax obligations, but it was important context for how the situation had arisen and why it hadn’t been dealt with sooner.
Reconstructing years of property records
Our first task was to establish what had actually happened financially. Rather than looking only at headline rental income, we rebuilt the position year by year, analysing rental receipts alongside relevant expenditure such as repairs and maintenance, insurance, council tax and, where applicable, finance costs.
We also split the calculations by property instead of treating everything as one combined figure. That proved important when HMRC later asked for a breakdown for each property.
The reconstruction showed that some years produced losses rather than profits, and those losses had to be considered across the relevant years instead of looking at each year’s income in isolation. It was detailed work, but it meant our response to HMRC rested on a structured reconstruction of what had really happened, not on unsupported estimates.
Dealing with the late appeal
The second part of the case was different. The appeal had been made late, and when that happens, showing that an assessment may be wrong doesn’t resolve the procedural problem on its own. The reasons for the delay have to be addressed too.
Here, there was professional evidence from the time of the client’s longstanding learning difficulty, describing significant difficulty with processing written information, reading speed and short term visual memory. We explained to HMRC why this was relevant to the client’s ability to understand and manage their tax affairs.
We didn’t argue that vulnerability removed the client’s tax responsibilities. We set out the position factually:
- there was independent evidence of a longstanding difficulty
- it affected the client’s ability to process complex written information
- the client hadn’t properly understood the reporting requirements for their rental income
- this contributed to the delay in bringing the matter to an accountant
- once they had professional help, the client engaged with the process and worked to bring their affairs up to date.
The supporting evidence went to HMRC alongside the financial analysis.
Responding to HMRC’s questions
HMRC then asked for more information, including detailed income and expenditure for each property rather than for the rental business as a whole. We prepared the additional schedules and made a further representation covering both the property tax calculations and the circumstances of the late appeal.
The aim was to give HMRC enough information to consider the tax on its merits, while understanding how the client had reached this position in the first place.
What this case shows
Old records don’t make the position impossible to resolve
Historic tax work can be difficult, especially where records are incomplete, but information can often be reconstructed from the available evidence and analysed systematically.
Expenses and losses matter
Undeclared rental income doesn’t automatically mean tax is due on the gross rent received. Allowable expenditure, losses and the tax rules that applied in each year all need to be considered before the correct position is known.
Explain why it happened
Where deadlines have been missed, HMRC will normally need more than a statement that the taxpayer didn’t understand their obligations. The chronology, the taxpayer’s circumstances, what stopped them acting sooner and what changed afterwards can all be relevant.
Identify vulnerability properly
Learning difficulties, disability, health issues and other vulnerabilities can affect how some taxpayers deal with HMRC and understand complex correspondence. They shouldn’t be exaggerated or used as a convenient excuse, but where genuine vulnerability has materially affected someone’s ability to manage their tax affairs, it shouldn’t be ignored either. Independent evidence carries particular weight.
Get the numbers right first
A persuasive letter can’t make up for weak calculations. Here, the representation to HMRC was backed by a detailed year by year analysis of the property position, and establishing the facts first made the submission on the wider circumstances far clearer.
Facing a historic property tax issue?
If you’ve received an HMRC assessment, discovered undeclared rental income or need to bring earlier tax years up to date, dealing with it early is usually better than letting it become more complicated.
At ATS Accountants, we can reconstruct historic records, review rental income and expenditure, calculate the likely tax position and correspond with HMRC on your behalf. Where there are exceptional personal circumstances or vulnerabilities, we’ll make sure they’re explained properly and supported by the right evidence. You can read more about our HMRC investigations support.
Need help with an HMRC property tax issue? Contact ATS Accountants to discuss your circumstances in confidence.