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Baxter Basics MP

Hmrc Questioning My Ltd [Property] Company

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VI sets up a Ltd Co for his portfolio of around 55 properties, usual old chestnut of "with interest rates at an all-time low" followed by a some dodgy accounting set-up to avoid some tax. Taxman doesn't quite agree.

http://www.property118.com/hmrc-questioning-ltd-company/68694/

:)

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He setup his own company to which he was the only customer and used his personal accounts to manage the books. Not a particularly good job at hiding the scheme his accountant sorted out for him. I'm sure he is innocent and the tax man will forgive the poor LL.

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It is a scam unless the LTD has purchased all the debt from the man, the ownership of the houses have been sold to the LTD at an "armslength" price and the whole kit and caboodle belong to the LTD.

In other words, I suspect he is putting the income through the LTD which actually might be OK, but the costs of the housing have no place in the books of the LTD as it has no ownership or interest in them. I suspect they have "employed" the LTD as a sort of dependant EA manager, but as the scheme is solely aimed to reduce a tax liability then it is clearly an evasion.

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"We put through a fixed amount (15%) of the yearly rental income that would be similar to high street letting agents. This amount is based on the fact that we manage all the maintenance and file any eviction paperwork and attend court ourselves, so the 15% was deemed to be fair."

I don't know what that means...

If the properties are owned by the LTD company then all income and expenditure of them is the LTD companies and presumable he and his wife as directors can take salary and dividends?

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"We put through a fixed amount (15%) of the yearly rental income that would be similar to high street letting agents. This amount is based on the fact that we manage all the maintenance and file any eviction paperwork and attend court ourselves, so the 15% was deemed to be fair."

I don't know what that means...

If the properties are owned by the LTD company then all income and expenditure of them is the LTD companies and presumable he and his wife as directors can take salary and dividends?

I think the properties are owned by him plus wife. The ltd is just a letting agent charging 15% of rents to him and his wife for managing properties

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I think the properties are owned by him plus wife. The ltd is just a letting agent charging 15% of rents to him and his wife for managing properties

Yes I think it is reasonably sure this is the scam.

If he gets away with it I will start billing a limited company for all the cleaning, driving, general chores, financial advice, personal training etc I render to myself in order to lower my tax bill.

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"We put through a fixed amount (15%) of the yearly rental income that would be similar to high street letting agents. This amount is based on the fact that we manage all the maintenance and file any eviction paperwork and attend court ourselves, so the 15% was deemed to be fair."

I don't know what that means...

If the properties are owned by the LTD company then all income and expenditure of them is the LTD companies and presumable he and his wife as directors can take salary and dividends?

He is saying what I said...he is claiming his other company is the managing agent and has costs which it charges for.

Its just that he is charging himself and doing the work himself where the evasion could occur.

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So circa 15% of gross rental incomes in the UK are syphoned off by letting agents?

What a crazy way to run a countrys housing.

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"We put through a fixed amount (15%) of the yearly rental income that would be similar to high street letting agents. This amount is based on the fact that we manage all the maintenance and file any eviction paperwork and attend court ourselves, so the 15% was deemed to be fair."

I don't know what that means...

If the properties are owned by the LTD company then all income and expenditure of them is the LTD companies and presumable he and his wife as directors can take salary and dividends?

Think he means set up a ltd co. as a quasi estate agency/rental agency,

He is saying what I said...he is claiming his other company is the managing agent and has costs which it charges for.

Its just that he is charging himself and doing the work himself where the evasion could occur.

Being both the provider of services and the purchaser of services then puts him in the position to potenitially fiddle the figures to ******. It is like making up your own bloody invoices!

Edited by onlyme2

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When you think about it this is exactly along the same lines as the corporates - who shuffle the "profit" part of their business to whichever company they prefer, except in their case it is set up so those "managing agents" or "profit centres" are in a prefereable tax location altogether.

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When you think about it this is exactly along the same lines as the corporates - who shuffle the "profit" part of their business to whichever company they prefer, except in their case it is set up so those "managing agents" or "profit centres" are in a prefereable tax location altogether.

Quite. his error was not registering in Nevada.

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Think he means set up a ltd co. as a quasi estate agency/rental agency,

Being both the provider of services and the purchaser of services then puts him in the position to potenitially fiddle the figures to ******. It is like making up your own bloody invoices!

The proper way to do it (from a local example) is have a third party set up as a letting agent, they collect the rent and employ themself through it and then forgot to give you the rent money. They go bust having spent it all.

Then you have to take it back in house and manage it yourself until you find another friend interested in doing this.

Of course in the mean time the bank doesn't get it's money back but it'll be about 6 years before they grow the cahonies to do anything about it.

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So circa 15% of gross rental incomes in the UK are syphoned off by letting agents?

What a crazy way to run a countrys housing.

It does make you wonder where the profits from BTL come from....

It will certainly be an interesting tax case.

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Think he means set up a ltd co. as a quasi estate agency/rental agency,

Being both the provider of services and the purchaser of services then puts him in the position to potenitially fiddle the figures to ******. It is like making up your own bloody invoices!

It appears there are three separate tax payers. The ltd (managing agent) and then himself and his wife (property owners). All the scheme does is defer tax if the ltd does not pay a dividend or salary. HMRC will want to ignore the ltd as being a sham inserted for a non commercial purpose. As the ltd has no third party income, no independent directors and does not actually collect the rents HMRC have a case. IMHO

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So circa 15% of gross rental incomes in the UK are syphoned off by letting agents?

What a crazy way to run a countrys housing.

I've seen a minimum of 5%. Plus they charge both landlord and tenant for every renewal.

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The scam with incorporation is dividends...you set your salary low and take the rest with a mere 10% hit on dividend. In theory the dividend is supposed to be the icing on the cake and the bulk of earning through paye as an employee of your own company.

The fact is some accountants take libities with the divi.

Edited by crashmonitor

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So circa 15% of gross rental incomes in the UK are syphoned off by letting agents?

What a crazy way to run a countrys housing.

Why do you think they are against any sort of regulation of the lettings industry?

Although 15% is probably what he thought he could get away with rather than the norm.

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Of course, if he was smart he would have found another LL and run HIS properties, whilst that LL did the same and ran his. That way, no challenge would be possible by HMRC.

Shows how crazy the whole thing is.

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The scam with incorporation is dividends...you set your salary low and take the rest with a mere 10% hit on dividend. In theory the dividend is supposed to be the icing on the cake and the bulk of earning through paye as an employee of your own company.

The fact is some accountants take libities with the divi.

Even better, you get a tax credit on the dividends, because you've already paid corporation tax on the profits. And you don't pay national insurance on dividends...

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Nuts is'nt it, I've been saying for the last 6 years that HMRC will hound BTL, but as yet nothing. Ummmm.

The logical conclusion is a lot of HMRC staff are up to their necks in BTL.

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