When you complete the property income pages of your self-assessment, the notes to the pages include what looks like a good way of avoiding some work on what you probably regard as the most boring task of the year.
If your total income from property (including furnished holiday accommodation as well as ordinary letting) is less than £77,000, instead of completing all the boxes for expenses you can simply put the total for them all in Boxes 9 (furnished holiday accommodation) and 29 (other property letting income).
There is a similar opportunity offered to the self-employed if their turnover is below £77,000 – they can just include one figure for all their business expenses in Box 19 of the ‘short’ version of the self-employment pages.
The figure of £77,000 is linked to VAT – if you are registered for VAT and want to de-register, your turnover must be below £77,000.
Less work, but…
There is a common misconception that returns which take advantage of this ‘one box’ policy are less likely to be investigated, but this is not the case. In particular, if your figure for expenses is on the high side, or if it differs significantly from that of the previous year, then this may well trigger an HMRC enquiry.
When preparing a tax return, a good agent will be alert to the risks of an enquiry being launched, and will make use of the space provided for notes (referred to as the ‘white space’) to explain anything unusual.
An obvious example is repairs. In some years these may be particularly high, perhaps because the property has been redecorated, and in such a case it pays to include this information in the ‘white space’.
There are two reasons for doing this. The first is to answer questions before HMRC ask them and thus to save the risk of an expensive and time-consuming enquiry, and the second is to minimise HMRC’s opportunity to make a ‘discovery’.
‘Discovery’
The time limit for HMRC to open an enquiry into a tax return is twelve months after it is filed. For the 2012/13 return, which is due to be filed by 31 January 2014, the latest date for HMRC to enquire into it will be 31 January 2015 – and then only if the return was filed on the last possible day. If you have already filed your 2012/13 return, say on 30 September of this year, HMRC only have until 30 September 2014 to ask questions.
If, however, HMRC can say they have ‘discovered’ that there is something wrong with the return, they have a much longer period within which they can open an enquiry – four years in any case, and up to 20 years if they can show that the mistake in the return was ‘deliberate’.
There has been much dispute about exactly what constitutes a ‘discovery’ for this purpose, which is beyond the scope of this article, but as a broad principle a ‘discovery’ can be made if HMRC can show that the mistake in the return (for example, claiming the cost of an extension to the property as a repair) would not be apparent to an inspector reading the return itself.
Clearly, if all the expenses are lumped together in one box, it would be harder for the inspector to spot a problem, and the risk of his being able to claim a ‘discovery’ is increased.
Practical Tip:
If your property expenses are itemised under the various headings and any unusual figures are explained in the ‘white space’, then it will be harder for the inspector to claim a ‘discovery’ at some later date, or to justify opening an enquiry within the twelve month ‘window’ after the return is filed.
