HMRC Tax Evasion Investigation: Undeclared Rental Income

What Should I Do if HMRC Mentions Fraud After My First Reply?

Read HMRC’s latest letter carefully and identify the investigation process and any response deadline. Do not send another reply until you have read the letter carefully and taken legal advice. 

Fraud language in HMRC correspondence signals that your case may have moved beyond a standard compliance check, and responding without understanding which process HMRC is using can make things significantly worse.

Check which process applies to your case

HMRC operates more than one type of investigation, and each carries different obligations and different consequences for how you respond.

The letter you have received should indicate which process is in play.

• A civil compliance check or aspect enquiry examines a specific item in a tax return, such as rental income or an expense claim.
• A COP9 letter, issued under Code of Practice 9, is considerably more serious. It means HMRC formally suspects serious tax fraud and is offering the Contractual Disclosure Facility (CDF) as a civil route to resolution. 

HMRC states that where a taxpayer accepts and provides a full, accurate and honest disclosure, it will not pursue a criminal investigation into the conduct that was disclosed.

A criminal investigation by HMRC’s Fraud Investigation Service (FIS) means prosecution is the objective. This is the most serious track and is used where HMRC believes the conduct justifies a criminal sanction rather than a civil one.

Reading the letter accurately before you act is therefore the first step. If you are unsure which process applies, a solicitor experienced in tax investigations can identify it from the correspondence.

Check your deadline before responding

If you have received a COP9 letter and are being offered the CDF, you have 60 days from the date of the letter to submit your Outline Disclosure. 

Missing that deadline, or submitting a response that HMRC considers inadequate, can close the civil route.

No substantive response to a COP9 or fraud-related enquiry should be sent without legal advice. 

Even a response intended to cooperate can create difficulties if it is incomplete, inaccurate or framed in a way that HMRC interprets unfavourably.

When Can Undeclared Rental Income Lead to Criminal Prosecution?

Undeclared rental income does not automatically become a criminal tax evasion matter. 

HMRC resolves most cases of unpaid tax through its civil powers: recovering the unpaid tax, charging interest and imposing a financial penalty. 

Criminal prosecution is reserved for more serious circumstances.

The distinction between civil and criminal conduct

A landlord may underdeclare rental income through an accounting mistake, misunderstanding or deliberate decision to conceal earnings.

Those situations are not treated identically.

HMRC may consider whether you submitted inaccurate returns, concealed rental payments, provided misleading documents or deliberately withheld information after being questioned.

For example, accidentally omitting income from one property is different from knowingly concealing several rental accounts over many years.

Your incomplete first response may be relevant, but HMRC must consider the circumstances rather than assume it was deliberately misleading.

How twelve years of undeclared income affects the assessment period

HMRC can generally assess unpaid income tax going back four years where the loss was not caused by careless or deliberate conduct, or six years where it resulted from carelessness.

The assessment period may extend to twenty years where the tax loss resulted from deliberate conduct or certain failures to notify HMRC of liability.

If HMRC is examining twelve years of rental income, it does not necessarily mean it has already established deliberate behaviour.

For example, the extended assessment period may be relevant where you failed to notify HMRC that you needed to pay tax on rental profits.

The correct period depends on what returns were filed, whether HMRC was notified and how the loss of tax arose.

Can I Correct an Incomplete Reply to HMRC?

You can provide corrected information after an incomplete response, and doing so may help HMRC establish the correct tax position.

However, the correction must be accurate and appropriate to the investigation process.

What “prompted” means in your case

Once HMRC has made contact, any further disclosure you make is classified as prompted. 

A prompted disclosure typically attracts higher minimum penalties than an unprompted one, because an unprompted disclosure is made before HMRC has any reason to look at your affairs. 

That said, a prompted disclosure remains substantially better than providing no further information or continuing to supply incomplete figures.

 Cooperation and fuller information are factors HMRC takes into account when calculating penalties and deciding how to treat the case.

How a correction can help

A corrected disclosure may establish which rental income was omitted and whether the earlier figures were inaccurate because of an error or deliberate conduct.

You should account for the relevant rental income, allowable expenses and tax years, using supporting records wherever possible.

If you have received a COP9 offer, accepting the CDF requires an admission of deliberate behaviour. It should not be treated as a routine way of correcting an innocent mistake.

Under a valid CDF agreement, HMRC undertakes not to criminally investigate the tax fraud properly disclosed, provided you comply with the contractual requirements.

That protection does not extend automatically to other offences, undisclosed fraud or investigations by other authorities.

Warning: incomplete COP9 disclosures carry their own risk

A COP9 disclosure must be honest and complete.

If HMRC discovers that you omitted fraudulent conduct or submitted false information, it may investigate the undisclosed matters and may pursue separate offences arising from false statements or documents.

An incomplete Outline Disclosure does not automatically remove protection for fraud that was properly disclosed, but it can leave other conduct exposed to criminal investigation.

Before accepting or rejecting a CDF offer, establish what you can accurately admit and what evidence supports your account.

Can I Still Use the Let Property Campaign After HMRC Contacts Me?

The Let Property Campaign allows eligible residential landlords to disclose previously undeclared rental income.

However, if HMRC is already investigating the same tax affairs, you should establish whether the campaign remains appropriate before attempting to use it.

What the Let Property Campaign is

The Let Property Campaign is a targeted voluntary disclosure scheme run by HMRC for landlords with undeclared rental income. 

It allows landlords to calculate and pay outstanding income tax on rental profits, together with interest and reduced penalties, by notifying HMRC of their intention to disclose and then submitting the disclosure within a set period. 

Where it applies, reduced penalties reflect the fact that the landlord has come forward voluntarily.

Whether prior HMRC contact affects eligibility

HMRC guidance on the Let Property Campaign states that the scheme may not be available to landlords who are already under a formal enquiry or investigation. 

Using the campaign when you are ineligible does not protect against investigation and does not reduce penalties in the same way as an eligible disclosure would. 

If HMRC has already opened a compliance check, issued a COP9 letter or commenced a criminal investigation, the campaign route may be closed entirely.

What to check before using the campaign

Before attempting to use the Let Property Campaign, confirm whether HMRC has opened a formal enquiry into your tax affairs, what the nature of any existing HMRC contact is, and whether a COP9 or criminal process has already started. 

If a COP9 has been issued, it overrides the campaign route and the CDF process must be followed instead. 

Even where the campaign may still be available in principle, the figures submitted must be accurate. Submitting figures that cannot be substantiated creates further difficulties rather than resolving the original problem.

What Records Do I Need to Reconstruct My Rental Income?

Start by gathering the available records for each property and tax year.

You need to establish the rent received, any allowable expenses and the differences between your reconstructed figures and what you previously told HMRC.

Tenancy agreements and letting agent statements

Signed tenancy agreements confirm the tenancy period and the agreed rent for each tenant. 

Where a letting agent managed the property, the agent’s statements and invoices show gross rent received, fees deducted and any arrears or rent-free periods.

If the original signed agreements are not available, copies may be obtainable from the letting agent or, in some cases, from former tenants. Gather everything that exists before concluding that records are missing.

Bank records and rent receipts

Bank statements are primary evidence of actual payments received. 

They allow you to cross-reference rental credits against tenancy agreements and identify gaps, underpayments, periods of vacancy or cash payments that may not appear elsewhere. 

Twelve years of reconstruction may require older archived statements, which banks are usually able to supply on request, though there may be a charge and lead time involved.

Where rent was paid in cash, any receipts issued or recorded at the time should be included.

Where no receipt exists, the absence itself needs to be noted and explained in the reconstruction.

Expense and repair documents

Allowable expenses may reduce the taxable profit from your rental properties.

These can include letting agent fees, insurance, maintenance and qualifying repair costs.

Capital improvements are generally treated differently from ordinary repairs.

For individual landlords with residential property, mortgage finance costs are also subject to restrictions. Since the 2020–21 tax year, relief for qualifying finance costs has generally been provided through a basic-rate tax reduction rather than a full deduction from rental income.

Gather invoices, receipts and relevant bank transactions for each tax year.

The rules applicable to expenses may have changed during the period HMRC is examining, so calculations should reflect the requirements for each year.

Identifying and explaining the gaps in the first reply

Once the figures have been reconstructed, compare them with your original response to HMRC.

Identify any omitted rent, incorrectly calculated expenses or missing tax years.

For example, you may discover that letting agent statements included rental income from a property you overlooked or that certain payments were recorded under the wrong year.

Explain each discrepancy using the available evidence.

Where figures must be estimated, make the basis of the estimate clear. Do not present an estimate as an amount confirmed by records.

Could I Need to Tell the NMC or My Employer?

Possibly. The Nursing and Midwifery Council (NMC) and your employer have separate requirements, and whether you must report the matter depends on what has happened and the obligations that apply to you.

A civil HMRC investigation does not automatically trigger the same reporting requirements as a criminal charge or conviction.

NMC self-reporting obligations

The NMC Code requires nurses, midwives and nursing associates to act with honesty and integrity.

It also requires registrants to notify the NMC and their employer as soon as they can if they are charged with a criminal offence, receive a relevant caution or conditional discharge, or are convicted.

An HMRC compliance check or civil tax settlement is not automatically equivalent to any of those outcomes.

However, serious findings involving dishonesty may raise separate fitness-to-practise concerns, even where no criminal conviction follows.

If HMRC has accused you of deliberately concealing rental income, obtain advice about whether the circumstances raise any professional reporting concerns.

Employer obligations

Your employment contract or workplace policies may contain requirements to report criminal charges, cautions or convictions.

If you work for the NHS or another regulated healthcare employer, professional conduct policies may also be relevant.

A civil tax investigation does not necessarily require disclosure to your employer, but you should check your contractual obligations rather than assume no reporting requirement applies.

Where you are charged with an offence, the NMC Code’s reporting requirements are particularly important.

Whether HMRC discloses to the NMC or employer

HMRC is subject to statutory taxpayer confidentiality obligations.

It does not routinely disclose the outcome of ordinary civil tax enquiries to employers or professional regulators.

However, information may be shared where a lawful disclosure gateway applies.

Criminal court proceedings and convictions may also become publicly accessible and could come to the attention of your employer or regulator.

You should therefore consider your own reporting obligations separately from whether HMRC is likely to contact the NMC or your employer.

What Tax Penalties or Criminal Sentences Could Apply for Tax Evasion?

The financial and criminal consequences of tax evasion depend on whether the case is treated as civil or criminal, and on HMRC’s assessment of the behaviour that caused the tax to go unpaid. 

Civil and criminal consequences are distinct and need to be understood separately.

Tax owed and interest

You may need to pay the outstanding income tax on rental profits for each year HMRC can lawfully assess.

The amount will depend on the rental income received and the deductions or reliefs available for the relevant tax year.

HMRC also charges interest on late-paid tax.

Interest generally runs from the applicable payment due date and is calculated using the rates in force during the relevant periods.

HMRC’s late-payment interest is generally simple interest rather than compound interest.

Where rental income has remained undeclared for many years, interest can still add substantially to the amount owed.

Civil penalties

HMRC can impose penalties where a tax loss results from careless or deliberate behaviour.

The applicable regime depends on the circumstances, including whether inaccurate returns were submitted or a liability was not notified.

Deliberate and concealed inaccuracies can attract penalties of up to 100% of the additional tax in standard domestic cases, before any applicable reductions.

Different penalty rules and ranges may apply to failures to notify or offshore matters.

HMRC considers the quality of disclosure and cooperation when determining reductions.

The fact that the undeclared income covers twelve years does not, by itself, establish that deliberate concealment occurred.

Criminal sentences for tax evasion

Where HMRC brings criminal proceedings, the potential sentence depends on the offence charged.

Fraudulent evasion of income tax can carry a maximum sentence of fourteen years’ imprisonment for offences committed from 22 February 2024. The previous maximum was seven years.

Fraud under the Fraud Act 2006 carries a maximum sentence of ten years.

The common law offence of cheating the public revenue carries a maximum sentence of life imprisonment.

The Sentencing Council’s revenue fraud guideline provides the relevant sentencing framework.

Courts consider the tax involved, the duration and sophistication of the conduct, the defendant’s culpability and any aggravating or mitigating factors.

A criminal investigation does not mean prosecution or imprisonment is inevitable. The outcome depends on the evidence and the offence established.

Asset recovery and confiscation

A conviction for tax evasion may also lead to confiscation proceedings under the Proceeds of Crime Act 2002.

The court may assess the financial benefit obtained from criminal conduct and the amount recoverable from the defendant.

In a tax evasion case, the benefit may reflect tax dishonestly avoided.

A confiscation order is separate from any custodial sentence or fine and may create further financial obligations.

The calculation depends on the offence, the applicable statutory rules and the available evidence.

How a Solicitor Can Help With a Tax Evasion Investigation

If HMRC has challenged your rental income figures and raised concerns about fraud, a solicitor can review the correspondence and identify the investigation procedure.

They can advise whether you should correct information through an existing civil enquiry, respond to a COP9 offer or prepare for a possible criminal investigation.

A solicitor can also work with a tax specialist to reconstruct rental income, assess the evidence surrounding your incomplete first response and help ensure that further information is accurate.

If you are registered with the NMC or work in a role with professional reporting obligations, they can advise on those separate concerns as well.

Our fraud and financial crime team can assist with HMRC investigations, allegations of tax evasion and the preparation of responses to investigators.

You can send an online enquiry or find out more about how we can help with tax investigations and fraud matters.