HMRC has recently launched a One to Many letter campaign targeting ATED avoidance, or incorrectly claimed ATED relief. The campaign is aimed at offshore companies that own UK residential properties valued at over £500,000 that have consistently reported losses on their self-assessment tax returns from 2017/18 to 2019/20.
Who is Affected?
The campaign targets offshore corporates that meet the following criteria:
- They have declared no taxable profits from their UK rental income during the specified period.
- They have reported rental losses but may not meet the criteria of a commercially run property rental business.
Both companies who have filed for Annual Tax on Enveloped Dwellings (ATED) relief and those who have not are being contacted.
What is ATED?
Annual Tax on Enveloped Dwellings (ATED) is a tax in the UK that applies to companies, partnerships with corporate members, and collective investment schemes that own UK residential properties valued over £500,000.
There are various reliefs and exemptions applicable to ATED, but a return must still be filed to claim them. Common reliefs include those for qualifying property rental businesses, property developers, and certain charities.
More information about ATED can be found on the gov.uk website.
Why is HMRC Investigating ATED Compliance?
The key concern for HMRC is that some companies may have incorrectly claimed ATED relief while not running a genuine commercial rental business. According to HMRC, businesses that report consecutive rental losses may not be operating on a commercial basis and with a view to making a profit, which is a requirement for relief eligibility.
What do the letters say?
Each letter includes a schedule of required information and documents, requesting companies to review their tax position and take appropriate action.
The letters urge companies to:
- File outstanding ATED returns if they have not already done so.
- Reassess their rental business operations to determine whether they qualify as a commercial property rental business.
- Register for ATED and file all applicable liability returns.
- Provide supporting documentation to demonstrate eligibility for relief or correct past tax filings.
HMRC plans to issue these letters in batches over the next few months, with the campaign continuing into 2025/26.
Consequences of Non-Compliance
If a company fails to comply within 40 days of receiving the letter, HMRC may:
- Issue a discovery assessment estimating the tax due.
- Impose penalties for failing to file ATED returns.
- Charge interest on unpaid tax liabilities.
- Apply anti-avoidance provisions related to Transfer of Assets Abroad if applicable.
Options for Companies
Companies receiving these letters must respond promptly by either:
- Confirming their eligibility for ATED relief and providing evidence.
- Making a voluntary disclosure if they owe liabilities.
- Filing outstanding ATED returns where required.
HMRC has also reminded companies that if they suspect tax fraud, they should consider using the Contractual Disclosure Facility (CDF) to disclose irregularities.
Companies affected by this initiative should seek professional tax advice to ensure compliance and avoid potential penalties.
If you are unsure about your company’s tax obligations, the team at Ormerod Rutter can help. We can advise you on all aspects of ATED; if you need to file a return and whether you would be eligible for relief.
Contact us on 01905 777600, or email hello@ormerodrutter.co.uk
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