From: Property118 no-teply@property118.com & Subject: HMRC Stop Notice - Capital Account Restructure - INTERMEDIARY Dete: 22 July 2024 at 12:25 To: 9g @taxpolicy.org.uk HMRC Stop Notice - Capital Account Restructure - INTERMEDIARY Dear We are compelled by law to provide every person we have marketed to as a Client, Promoter or Intermediary, with a copy of the attached Stop, received from HMRC on Wednesday 17th July 2024. We have defined an Intermediary as any person or business that may have been in a position to consider recommending the Capital Account Restructure, as described in the HMRC Notice (or similar), to cllents or other landlords, regardless of whether we conducted business together. Since we previously sent you a copy of our eBook, “The Ultimate Guide to Landlord Tax Pianning" you fall into this category.

What to do if you received an HMRC stop notice from Property118?

Property118Stop NoticeTax Avoidance
July 22, 2024

9 Comments

Tens of thousands of people (including me!) just received this email from Property118, attaching a rather scary HMRC “stop notice” (PDF version here, or click on thumbnails below):

We all received the email because we once downloaded an ebook from the Property118 website.

What should you do if you’re in this position?

Nothing.

If all you did was download the ebook, or book a consultation you never took forward, then the stop notice is irrelevant to you. Property118 may consider you a “client” for the purposes of the rules that force them to write to people, but if you didn’t use any of their tax schemes then you’re not a “client” in any way that matters.

You can happily delete the email, and stop reading this article.

It’s unfortunate Property118 didn’t make clear that the email is irrelevant to 99% of its recipients.

What if you were a Property118 client, or used their tax planning ideas yourself?

If you did use Property118’s tax planning then you should be alarmed by the stop notice. It’s a very rare use of an HMRC power to require a business to stop promoting a “tax avoidance scheme” that (in HMRC’s view) doesn’t work. If the business continues to promote the scheme then those involved commit a criminal offence.

A stop notice is a serious thing. It has no direct effect on Property118’s clients, but it is a warning that HMRC is likely about to challenge their historic tax returns.

I’d strongly suggest someone in this position obtains independent tax advice from a regulated law or accounting firm.

Are your details going to be passed to HMRC?

Unfortunately they may be, if they signed up to the Property118 website on or after 17 July 2024.

Property118 protected its own position by taking a very cautious view of the legislation (and the definition of “client”). That’s why people are receiving an email when all they did was download an ebook or register with the Property118 website.

But it also means that people who only downloaded an ebook, or registered with the website, on or after 17 July 2024, may have their details passed to HMRC. That seems wrong, and potentially a breach of GDPR (i.e. if tax legislation does not in fact require an ebook downloader’s name to be given to HMRC). We will raise the matter with HMRC.

Background

We wrote about HMRC’s scrutiny of Property118 here, there’s more background here, and both articles contain links to our previous investigations into the company.

Footnotes

  1. The first draft of this article said the opposite; it took me a while to realise that Property118 must have taken the position that ebook downloaders were their “clients” under the POTAS rules. My apologies. ↩︎

  2. It’s revealing that Property118 took a very over-confident view of the law when other peoples’ tax and property was at stake, but are taking a very cautious view of the law now their own livelihood is on the line. ↩︎

  3. Or such later date as Property118 were given the notice – I don’t know when that was ↩︎

9 responses to “What to do if you received an HMRC stop notice from Property118?”

  1. Trevor Bee avatar
    Trevor Bee

    Regarding Capital Account Restructuring –
    If a business, (any business not just a property letting business), has surplus cash in its bank account but also has seed capital held in the assets owned by the business; then would the business owners be able to repay (without incurring a tax charge) this initial investment by withdrawing some of that cash, equal to the amount of the seed capital, either prior to incorporating their business, or just to return their initial investment?
    If the answer to this question is ‘No’ then does this have implications for all and every small business putting their own money into a business and / or moving towards incorporation ?

    How do you get your money back without a double taxation charge?

    Is it just the raising of a loan that causes the problem?

    If the problem is the raising of a loan to repay invested capital, then what is the situation where a business has existing borrowing but also ‘spare’ cash in the bank. To avoid incurring a tax liability, would you have to pay off all of the business borrowing first before you could then withdraw your own invested money?

    Presumably if you just sell up, you can return your original invested capital to yourself without having to pay tax on this amount?

    This is all very confusing.

    Reply
  2. Tigs avatar
    Tigs

    … unless they made a big accrual now, with the intention of releasing it when the income comes in.

    So looking at the accounts for the year ended 31 July 2023 which Companies House dates as yesterday:

    1. No income statement but the retained earnings fell by £462,000 to create a deficit on shareholders’ funds. That’s not normally a good thing.
    2. Only £37,000 of debtors but £1.1m of cash. While debtors haven’t changed much since last year, cash has gone up by £341,000.
    3. So that’s a bit strange. I guess their practice was for Cotswold Barristers Limited to send the invoices to the clients and, if so, low debtors makes sense.
    4. The related party transaction notes says that there are no debtors / creditors with Cotswold Barristers.
    5. So what has happened? How did cash go up so much and reserves go down so much? Perhaps there was a massive non-cash expense in the year?
    6. Accruals and deferred income were £5,000 in 2020, £32,000 the next year, £20,000 in 2022 and the latest year, 2023, £690,000. I can’t quite put my finger on it but it seems that something has changed in 2023. I wonder what?
    7. It’s difficult to see what the taxable profits were for the year as the taxation and social security figure of £444,000 might include VAT, PAYE, NIC and corporate tax.
    8. The accounts haven’t been audited.
    9. I guess it would be interesting to understand whether (i) the accrual has been properly estimated under UK GAAP (e.g. was there really a constructive obligation), and (ii) it’s the right kind of quanitfied accrual for the right kind of thing to be deductible. Perhaps this is the amount that they expect to refund to clients? It can’t be the amount that they expect to match against the company’s future crowdfunding income as that kind of mismatch feels wrong.
    10. I wonder if HMRC will enquire into this if it’s not disallowed in the tax return that they will eventually submit?

    Reply
  3. Michael Richards avatar
    Michael Richards

    Could the ebook be a flood tactic? They could now be saying to HMRC here are the tens of thousands of “clients” and somewhere in and amongst there are the few hundred real scheme users?

    Reply
  4. Tigs avatar
    Tigs

    “That’s why people are receiving an email when all they did was download an ebook or register with the Property118 website.”

    I downloaded the ebook and am disappointed I didn’t get an email about the stop notice.

    Reply
    1. Dan avatar
      Dan

      weird. If their reading of the definition of “client” was correct then that could mean they’ve broken the law. But it isn’t so it doesn’t!

      Reply
  5. MC avatar
    MC

    P118 have put out a ridiculous article on their site saying they are in a ‘David and Goliath’ battle with this website (and Dan personally), and HMRC. The (carefully selected) comments, many of which are from users who suspiciously NEVER comment on their other articles, are all backing Mark and Cotswold Barristers.Some are suggesting Mark and CB are tax professionals and experts (they aren’t), and apparently, they have evidence of 20 prior cases that used the same structure which HMRC were happy with (good luck with that). Naturally they are still begging for donations that will no doubt disappear very quickly, and I suspect Mark and P118 won’t be far behind. Popcorn time.

    Reply
    1. Damian W avatar
      Damian W

      Interesting. What’s the tax status of donations gifted for that purpose?
      There’d be a lovely irony if they were reportable income in some way and caused P118 even more problems with HMRC!

      Reply
      1. Dan avatar
        Dan

        taxable, but the expenses they’re funding will I expect mostly be deductible. Would however be a problem if the donations come this tax year and the expenses come next year…

        Reply
        1. MC avatar
          MC

          A new and ‘improved’ BEGGING article for some more cash donations to allow P118 to continue to ‘help’ Landlords. Seems they aren’t getting much consultancy custom and the fees have dried up. That doesn’t compute with all the supposed valued clients who have given their full support in the comments. Hmmmm.

          https://www.property118.com/how-much-do-you-value-property118/

          Reply

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