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TonyTax
TonyTax, Tax Consultant
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I need some advice please on UK property tax combined with

Resolved Question:

I need some advice please on UK property tax combined with UK employment income.
The compliance team at HMRC are querying my tax return from 2010/11, during that year I had two separate jobs and between those jobs I started letting a property. These are my earnings and deductions:

Gross income from first job: £8995 tax deducted (via PAYE) £1152 earnings over period from start of tax year until 10/09/2010.

Gross earnings from property: £3616
Deductions from property:
£250 insurance
£713 management fees
£1525 repairs & maintenance
£1437 interest only mortgage
£3925 TOTAL = -£309 loss

Gross income from second job: £2269 (from 27/01/2011 – 05/04/2011)
NB This is where it gets complicated and what triggered the check as in error I entered £195 tax paid on return whereas in fact £194 was repaid by the employer. The final tax code was 647LX (from P60).

HMRC now think I might owe £389 being the tax my second employer refunded and the £195 I declared as tax paid.

I should also mention that HMRC refunded £1113.31, although the letter about the check makes no mention of this.

Am I correct in saying I simply need to make HMRC aware of my error in entering the £195 as tax paid on my return? The frustrating thing is that I made that return more than 2 years ago, and I can’t remember exactly where I got the figure from – i.e. whether I simply subtracted 20% from my pay, or whether I looked at the P60 and misread it. I know very little about tax matters, and up until recently I believed that tax was paid according to current income, and not earnings over the whole year.

Please get back to me if you need any further information.

Many thanks in advance.
Submitted: 3 years ago.
Category: Tax
Expert:  TonyTax replied 3 years ago.

Hi.

If you earned a total of £11,264 in 2010/11 and you were under 65 throughout that tax year, you would have been entitled to a personal allowance of £6,475 so your taxable income would have been £4,789. Tax on that at 20% would have been £957.80 and that would have been what you should have paid given that your final tax code looks to have been correct.

 

You made a loss on your letting in 2010/11 but that loss could not be offset against your other income unless it was from a furnished holiday let.

I cannot see how the £1,113.31 repayment relates to 2010/11 and how that fits in. If £194 was refunded through the payroll by your second employer then you would have paid £958 in tax overall (£1,152 deducted by first employer - £194 repaid by second employer through PAYE). That should have left you square.

If your self-assessment claimed a tax deduction of £195 or the second job, then you will owe £389 (£195 not actually paid + £194 refunded as a result of the error in your tax return).

You are too late to amend the 2010/11 tax return online. Call the tax office on the number here and tell them what you think happened (that you don't think you paid £195 in tax on your second job and that you actually had £194 refunded). The tax office will be able to tell you if that was the case. Normally, when a taxpayer makes an error in a return, HMRC issue a form SA302 which is their calculation of what they think your tax position is. If you didn't get one, ask for one when you call.

 

I hope this helps but let me know if you have any further questions.

Customer: replied 3 years ago.

Hi Tony


 


Thanks for your prompt response - however, it's my understanding (and most other landlords I know, including some very experienced ones) that certain expenses relating to rented residential property can be claimed - namely repairs and maintenance (but not an enhancement), professional fees (e.g. legal expenses and management agent), mortgage and insurance and household bills (though that wouldn't apply in most cases) - please see http://www.taxfix.co.uk/forum/articles/allowable-expenses-on-renting-a-house.html and http://www.hmrc.gov.uk/worksheets/sa105-notes.pdf (Property Income, halfway down page 7).


Thank you for clarifying the PAYE aspect of my return - based on this, I've gone over my return again and concluded that I may owe £195.00 being the employer income that was erroneously declared - I have also followed your advice requested form SA302 showing my recalculation, or theirs if they disagree.

Expert:  TonyTax replied 3 years ago.

I wasn't saying you couldn't claim expenses against your rental income and I have no problem with those figures. I was just making the point that you cannot use the £309 loss against your salary income as a deduction.

 

Good luck with the tax office.

TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15886
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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