Q: Last year I completed my tax return but received a letter from my tax office stating that I do not need to complete a tax return in the future. However, I purchased a rental property during the 2009/10 tax year and have been renting this out for a small profit. Should I continue to file a tax return even though they have not issued me with one?

A: There is a requirement to notify the tax office by 5th October following any tax year where you owe further tax in addition to any tax that has already been deducted at source. As you have made a small profit from your rental income activities then you need to notify the HMRC. This gives them enough time establish if a tax return is required and to issue you with one to complete.

However, HM Revenue & Customs are trying to reduce the burden of Self Assessment on taxpayers who have straightforward affairs and have identified some areas where a tax return will still not required.

If your income from rents is less than £2,500 for the year and your other income is from employment where tax is deducted at source, you can just contact the tax office and they should be able to settle your additional tax liability through an adjustment in your PAYE code, and collect the underpaid tax through deductions in your wages each month. This will avoid the onerous task of completing a tax return to show this small amount of income.

Q: I started renting out a property a number of years ago, and due to the fall in interest rates have recently made a profit. In previous years I have always incurred losses. I haven’t ever completed a tax return as I am in PAYE employment. How should I notify the HMRC of this additional income?

Lewis, Sunderland

A: If a taxpayer receives any taxable income in a tax year of which HM Revenue & Customs is unaware, then they have a legal duty to “notify of chargeability” to tax by 5 October following the end of the tax year in which the income was received.

The HMRC recently published guidance explaining that a lot of straightforward work can be dealt with over the phone to avoid the administrative burden of completing a tax return.

They explained that clients with net property income (that is income after expenses incurred) of £2,500 can use this facility, as they will make an adjustment through your PAYE code to recover the tax due. For more complicated matters they insist on receiving notification in writing.

You mentioned that you made a loss on the property in previous years. Even though you have not been asked to fill out a tax return, you should still notify HMRC of any losses, as you can offset these losses now that you have made a profit from the rental business.

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Property Accounting Advice from TaxAssist Accountants

Q: I filed my tax return online before Christmas, but due to cashflow problems I do not think I will be able to pay the tax I owe by the deadline of 31st January. Will I still receive a late filing penalty of £100?

Lisa, Stoke-on-Trent

A: You will not receive the £100 penalty as you have filed your tax return before the 31 January deadline, however the Collector will begin to charge interest on a daily basis starting from midnight on 1st February 2010 on the amount of tax unpaid. Interest is currently being charged at a rate of 3% on tax paid late.

You must also try to ensure that you pay the tax you owe by 28 February 2010, as any amounts relating to the 2008/09 tax liability that are still unpaid at this date will receive an initial 5% surcharge. There will then be a further 5% surcharge if any of the 2008/09 tax due remains outstanding after 31 July 2010.

Recently, the Chancellor announced an extension to the Business Payment Support Service for businesses affected by the current economic conditions. This service is designed for businesses who are worried about being able to meet tax, National Insurance or other liabilities owed to HMRC. You can get in touch with them to discuss payment options to help you deal with temporary cashflow difficulties on 0845 302 1435.

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Tax Return Help from TaxAssist Accountants