A Tax Return When No Tax is Due.
In the Budget Speech of March 2015, Chancellor George Osborne suggested that the Government would be looking to scrap self-assessment returns with a new account based system. Not much is known yet, we suggest this will be an information importing exercise, whereby for example your bank accounts, investments, pensions and wages are directly linked to you HMRC personal account. Instantly, HMRC will know what taxable income you have at any point.
That said, today, we are still required to file tax returns. However, we do come across people regularly who say as there was no tax due, I didn't need to do a tax return.
For example: you have your normal employed income which is taxed at source income i.e. income tax has already been deducted by your employer but in addition you have an investment property, a buy to let property. You received rental income of £500 a month but the interest payments and expenses on the mortgage on the property are £600 a month. This means there is no profit, i.e. a £100pm loss, so no tax is due.
Why should you do a tax return if you are making a loss?
The simple answer is you still required by HMRC to file a tax return as you have received investment income you need to make HMRC aware, even if there is no tax due. They will tell you if they do not wish you to file any tax returns again.
At the time of writing, HMRC also has a ‘let property campaign’. The ‘let property campaign’ is where HMRC is investigating people who are not filing their self-assessment tax returns and they have investment/buy to let properties. Even if you haven't made any profits and no tax was due you need to file a tax return. Even were if you ‘break even’ exactly i.e. no gains no losses, you still need do a tax return. You cannot get away with this, many people forget that when you buy a property it is registered at the HM Land Registry and any stamp duty land tax is paid to HMRC. They already know you own the property!
Carry forward losses offset future profits
Obviously, if you have made a profit you need to do a tax return and pay the tax. Likewise, if you have made losses you still need to file a tax return so that your losses on your property investment income can be offset against future profits from the same area. You can carry forward your losses indefinitely and that is a bonus or benefit of completing tax returns.
Whether there is a taxable profit, breaking even or making losses on investment property, you need to file a tax return. You cannot say: “there was no tax due so I didn't think I needed to bother”. HMRC will not stand for this, their position is simple: ‘ignorance is no defence’ as they so eloquently put it to us once where a new client had not filed returns and asked for our help and to negotiate with HMRC.