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Making the Most of the Property Rental Toolkit

No-one wants to attract unwelcome attention from HMRC, particularly if that attention can be avoided by taking a bit of extra care. HMRC are alert to mistakes in returns and where they find them will look more closely at the taxpayer’s affairs. Even if the mistake doesn’t result in a penalty being charged, time may have to be spent answering queries and correcting the error.

To help reduce mistakes made in completing tax returns, HMRC have launched a range of 20 toolkits which highlight common errors that attract HMRC’s attention and the steps that can be taken to reduce those errors. The toolkits include a checklist, explanatory notes and links to further guidance on the topics.

Although the toolkits were developed primarily with tax agents and advisers in mind, they can be used by anyone who has to complete a self-assessment return. Of particular relevance to landlords is the property rental toolkit, which is available on the HMRC website at:

Just Another Form to Complete?

The nature of tax compliance is such that it requires the completion of an awful lot of forms. Many of these are compulsory, with penalties levied on those who fail to complete them correctly or on time. Form filling of this nature is something of a necessary evil, and something that the taxpayer is obliged to do regardless of whether he wants to or not.

The toolkits are a different matter. Their use is voluntary and as such the taxpayer has a choice as to whether he uses the toolkit and completes the toolkit checklist. Given that `filling in tax forms’ is not top of most people’s list of fun ways to spend an afternoon, it is easy to see why the opportunity to complete yet another HMRC form may not be greeted with much enthusiasm. For many, completing the property income pages of the self-assessment tax return more than satisfies any latent form-filling desire.

However, is to take this approach and to dismiss the toolkits out of hand something of a wasted opportunity?

A Free Crash Course

The property rental income toolkit provides something of a ‘crash course’ on the income tax treatment of income from property. The approach taken is a risk-based approach.

 The toolkit aims to identify the main areas of risk in relation to completion of the income from property pages of the self-assessment tax returns, explain what these risk areas are and suggest how the identified risk can be mitigated. For the more conscientious landlord (or those with a lot of time on their hands and a penchant for dry reading matter) there are links to the relevant guidance in HMRC’s Property Income Manual.

To get the most from the toolkit it is necessary to complete the checklist. This is essentially an aide memoir to ensure that nothing is overlooked. The checklist in the property income toolkit comprises 17 questions, which can be answered `yes’, `no’ or `N/A’. For each question there is a link to an explanatory note which sets out the risk and the steps than can be taken to mitigate that risk, together with an explanation of the rules (with links to further guidance in the HMRC manual).

For example, question 2 asks:

‘Have any deposits received been included as income as appropriate?’

In order to answer the question correctly, one should refer to the associated explanatory note, accessed by clicking on the relevant link.

Under the heading of `risk’, the user is advised that deposits from tenants should be recognised in accordance with generally accepted accounting principles, normally being deferred and matched with the costs of providing the services or carrying out repairs. The note also explains (again under the heading of risk) how deposit balances should be treated depending on whether they are refunded to the tenant and also that bonds are not rental income and are held separately. It is arguable that this is more an explanation of the appropriate treatment than an identification of a risk. Surely the risk is simply that deposits are not correctly dealt with and income is understated?

Under the heading of `mitigation’ the user is again told that deposits should normally be deferred and matched with the costs of providing the services and carrying out the repairs and instructed to review deposits and bonds to ensure they have been included as income where appropriate. A link is provided to the relevant guidance in the property income manual (at PIM1051: see

A similar approach is adopted for the other 17 questions, which cover different aspects of the taxation of property income, ranging from the inclusion of gross rents and other receipts and the treatment of surplus business premises to the treatment of various deductions and expenses.

While the toolkit provides a useful summary of the treatment of particular items of property income and expenditure, the approach is perhaps too generalised to be of any real value. This, combined with a tendency to repetition, leaves one being distinctly underwhelmed.  However, as its stated aim is in reducing errors in tax returns, it is necessary to look at the toolkit in tandem with the property income pages of the self-assessment return in order to see if it lives up to it claims.

Completing the Tax Return – Does the Toolkit Help?

An individual who receives income from UK income must provide details on that income on the UK property supplementary pages of the self-assessment tax return (SA105). In assessing the value of the toolkit in assisting in this task, there are several points worthy of note.

The first is that the toolkit does not follow the format of the return pages and there is no obvious cross referencing between the two. For example, if one was unsure of the entry required in box 5, the toolkit does not provide an immediate answer.

Instead one has to find the relevant question on the checklist and look at the associated commentary. This is a major weakness and arguably the toolkit would be more effective if it followed the tax return format and provided an assessment of the risks, mitigation and a note of the correct treatment for each entry.

One may also question whether the toolkit adds anything new, as HMRC already produce detailed notes (SA105 (Notes)) on completing the property income pages. The notes have the advantage of following a box by box approach, which is more user-friendly.

Information Overload

The extent to which the toolkits provide added value is perhaps questionable as arguably there is already sufficient free guidance on the HMRC website to help people complete the property income pages of the tax return correctly.

However, what the toolkit does provide is a quick overview of the tax treatment of various items of property income and expenditure in an alternative format that some may prefer.

Taking `Reasonable care’

Perhaps the toolkit’s greatest selling point is that, in using it, the taxpayer is able to demonstrate to HMRC that he had taken `reasonable care’ in completing his tax return. Under the current penalty regime for errors in returns, a penalty is not charged if the taxpayer can demonstrate he took reasonable care. This may be reason enough to give the toolkit a go.

Practical Tip

Use the toolkit as an aide memoir to ensure that nothing has been overlooked, and to remind yourself of the tax treatment of various items.

This is a sample article from the monthly Property Tax Insider magazine. Go here to get your first free issue of Property Tax Insider.