Landlord Incorporation Schemes – What are your options if your structure does not work?

The topic of incorporation schemes for private landlords has prompted much discussion recently, as some of the arrangements being offered have been analysed as simply not working. There are various arrangements (not just incorporation schemes) still being sold to allegedly reduce tax in various scenarios, so it is very much a case of ‘caveat emptor’, or let the buyer beware.

However, if you have already entered into an arrangement like this, and are now concerned that it does not work, or perhaps HMRC are now in touch and enquiring about your scheme, what can be done?

If the scheme you have entered arguably does not work (which will need to be checked), the first things to consider are both the tax returns that have been filed, and the tax returns that should have been filed – understanding the amount of tax that may be owing is important and removes some uncertainty from the process. It is important to note, however, that until any analysis is agreed by HMRC, it may be that there are a range of possible outcomes at this initial stage.

Part of the analysis should consider your ‘behaviour’. Whether you acted with reasonable care, were careless, or acted deliberately, will impact how far back HMRC can assess and what level of penalty, if any, will be appropriate. What advice did you receive? From whom? What advice did you seek? If there is an argument that, although the scheme may fail, you have personally taken reasonable care, the overall liability may be reduced.

It is also important to consider all taxes paid by all entities. For example, if you have returned income in a company, but that income should have been in your personal self-assessment, it may be that the company can make an overpayment claim to recover the tax that it has incorrectly paid. Also, if you have paid tax on any income received personally from that company, that tax may be available to ‘net off’ against any further personal liability.

The interaction between what was filed, and what should have been filed, can be complex, but it is important to establish.

Of course, you also need to ensure that your reporting is correct from that point onwards, you don’t want to make the problem worse.

You’ll also need to consider whether the implementation of the scheme was so poor that it can effectively be ignored, and the correct tax position presented to HMRC, or whether various contracts have created genuine legal consequences, and possibly unforeseen tax obligations, that must be dealt with. In some instances, HMRC may be content to simply ‘lift off’ the arrangements from a tax perspective and accept what should have been filed, but it is possible that dialogue with HMRC is needed to argue the position and agree what needs to be done.

There is also the question of how to disclose any additional tax to HMRC. There are several routes available to correct past errors with HMRC. Options include the Digital Disclosure Service, the Let Property Campaign and there is the Contractual Disclosure Facility for more serious cases.

Once the analysis is complete, the tax can be computed, and disclosure can be made to HMRC. In some cases, time to pay is needed and this can be negotiated with HMRC, depending on individual circumstances.A problem like this can seem daunting, but with the right help from experienced tax specialists it can be fixed.

If you find yourself in a situation where you’ve used an arrangement that you now believe may not work, please get in touch for a confidential discussion about how we can help you.

You can get in touch with our friendly and experienced team on: 0203 675 8122 or email jeremy.johnson@intaxltd.com.

Further reading on this topic:

Tax Policy Associates recently highlighted an incorporation scheme for private landlords that they argue simply does not work – the article can be found here.

The piece relates to an arrangement whereby a company is inserted into the ownership chain, but the sale is never completed, and the property remains legally registered to the individual. The analysis on the Tax Policy Associates website is detailed and we won’t repeat it here, but their conclusion is that the arrangements do not work. We’d generally recommend a read of the Tax Policy Associates website, as they provide detailed analysis on several tax issues.