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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15979
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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OK, so I rent out my flat and am full time employed. I make

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OK, so I rent out my flat and am full time employed. I make £2k a year after expenses on the flat. I have registered for self employment and been sent a bill for class 2 national insurance, is this all I have to do? My income started November 2014 so I thought I would need to write down my earnings somewhere but I have read you can earn £2500 without having to?

Leave this with me while I draft my answer.

You should not have registered as self-employed as rental income is not income form self-employment. HMRC have been sending demands for Class 2 NIC to some landlords on the basis that the rental income forms the larger part of their income. However, as you will read here, a case in 2002 determined that rental income was not self-employed income for Class 2 NIC purposes. Refer to page 13 of the notes here too.

You made the mistake of registering as self-employed when you should have just registered for self-assessment using a form SA1 which does mention rental income as a reason for registering as well as various other reasons but not self-employment. The NIC Act 2015 has changed the way that NIC will be collected in future, ie via the self-assessment tax return) and so you should receive no more demands. In fact, Class 2 NIC is likely to be abolished.

Call the tax office and tell them you made a mistake, that you are not self-employed and that you simply let a property which is not your main source of income. If you are told that Class 2 NIC, refer them to the 2002 tax case, Rashid v Garcia. Don't pay the Class 2 NIC. Call the number on the NIC demand too to explain the situation to them.

You do not get £2,500 of rental income tax free. Where the gross rents exceed £10,000 or the profit exceeds £2,500, you need to disclose the income and expense sin a tax return. Otherwise, you can if you wish choose to have the tax collected through a PAYE tax coding on an ongoing basis, though you still need to record the income and expenses. It's easier to complete the tax return annually in my opinion. You have probably already been issued with a tax retun in any event.

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

Customer: replied 2 years ago.

Thanks for the reply, makes sense so I just change to SA1 and do an annual return which should just be a case of my simple earnings and expenditure from letting the flat and the other details from my p60.

I am rather confused as to capital gains tax as well, if I ever sell the flat will I need to pay more tax as a result of it being let than I would if it were a normal residential property? I am currently on a residential mortgage with permission to let until my current product ends if this makes any difference.

You've already registered so you just need to tell HMRC and the NIC people that you are not self-employed. You still disclose the income but in rental income pages not in self-employment pages.

As the let property is not your main home, any gain will be subject to CGT unless it has been your main home at some point during your ownership in which case, the gain will need to be split between the taxable and non-taxable parts. Take a look at HS283 here for more information. The mortgage type is completely irrelevant.

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Customer: replied 2 years ago.

Hey Tony

Thank you for the info I have done as instructed. I did get led down the path of PAYE collection but following your advice I have asked for SA return instead which was accepted.

I was on hold forever on the 0300(###) ###-####number but sorted in the end, I am just awaiting an activation code but thanks to you I am confident that I am doing the right thing now.


That's good. As soon as you have used the activation code you can get the tax return done online.