The process is that HMRC are notified (by either the individual or their advisor) that the individual wishes to take part in the LPC and HMRC write to them with a reference number and allow the individual 3 months to complete the disclosure. This is called an unprompted disclosure in that the individual volunteers to HMRC that they wish to declare rental income.
Periodically HMRC also obtain information regarding housing benefit or from letting agents (HMRC have the legal power to force local authorities or letting agents to provide this information) and HMRC will write to the individual to whom the rent is paid and invite them to take part in the LPC. This is called a prompted disclosure and has a higher penalty than unprompted disclosures.
For instances where there are reasonable records and only one property then the 3 month suggested deadline is reasonable where an experienced tax advisor is doing the calculation and the profit and loss account. For more complex cases, although HMRC suggest the 3 months, if it is going to take longer to complete the LPC forms then we have found that clear communication will result in the agreement of extended time to deal with the LPC.
When the form is received by HMRC they are entitled to ask questions but having undertaken hundreds of these types of disclosures we have found that providing good information is provided to HMRC with the LPC form then they generally get accepted.
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