Recent weeks have seen a spate of one-to-many letters being sent by HMRC to taxpayers. HMRC's latest campaigns target Research and Development Tax Relief, undeclared income from short-term property letting, and individuals exceeding the Business Asset Disposal Relief (BADR) lifetime limit.

Research and Development Tax Relief

HMRC has sent one-to-many letters to 2,024 companies in the weeks commencing 23 and 30 January 2023 concerning Research and Development (R&D) Tax Relief.

  • In September 2022, HMRC’s provisional estimate was that 89,300 R&D claims were submitted in the 2020-21 tax year.
  • Letters have been sent to directors whose companies have made R&D claims in the past. HMRC state that they have seen an increase in fraudulent claims and are increasing their compliance activity.
  • The letter invites the recipient to work through a checklist of seven points to consider if any previous R&D claim made is complete and correct.
  • Where errors are identified, HMRC state the relevant return should be amended.

Income from short-term property letting

HMRC’s second one-to-many letter, sent from the week commencing 6 February 2023, targets income from short-term Property letting, particularly via sites such as Airbnb, VRBO, Booking.com and Holiday Lettings. Letters are expected to arrive between February and March 2023.

  • The letter states that HMRC’s records show the recipient may have earned income from short-term property letting and not declared it, meaning tax may be due.
  • HMRC ask that a ‘certificate of tax position’ is completed within 30 days. Where income needs to be declared, HMRC suggests using the Digital Disclosure Service (DDS).

Business Asset Disposal Relief (BADR) lifetime limit

HMRC's final nudge letter addresses individuals who have made a claim for Business Asset Disposal Relief in 2021-22, where HMRC believes the individual has either:

  • already exceeded the £1million lifetime limit, or
  • exceeded the lifetime limit due to their 2021-22 claim taking them over £1 million.

Affected taxpayers should check their tax return and amend it if necessary. If they conclude an amendment is not required, HMRC ask to be informed of that fact within 30 days. 

Useful guides on this topic

R&D Tax Relief: Overview
What is R&D Relief? How does it work? Why does the size of the company matter? What is sub-contracted R&D? How do I write an R&D Report?

A landlord? Start here...
This guide is essential reading for landlords: our guides take you step-by-step through planning your business for tax purposes and complying with your different tax obligations during the life of your rental business.

Making a tax disclosure (Digital Disclosure Service)
A practical guide to making a tax disclosure using HMRC's online system.

Let Property Campaign
HMRC’s Let Property Campaign is a disclosure opportunity which is aimed at property landlords who have failed to disclose rental income. 

Adviser's Guide: Property Business, profits and losses
What is property income? How is it taxed? How are profits calculated? How are losses relieved? Is NI paid on property income? Is property income classed as a business activity?

Property profits & losses: Toolkit (2022-23)
Our Property profits & losses toolkit takes HMRC's version and adds a great deal more information about what you can claim as an individual.

Business Asset Disposal Relief (Entrepreneurs' Relief): Disposal of a business
Entrepreneurs' Relief (ER) was renamed Business Asset Disposal Relief (BADR) by Finance Act 2020. When does BADR apply? What is the rate of BADR? How do you claim BADR? What BADR case law is there?  

Small print and links

Sources:

CIOT: Research and Development Tax Relief - HMRC One to Many letter

CIOT: Income from Short-Term Property Letting – HMRC One to Many Letter

CIOT: HMRC nudge letter and BADR lifetime allowance


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