You bought a property, rented it out and got on with your life. Perhaps you had a busy year, changed jobs, moved house or simply assumed that your rental income was too small to worry about. Then you realise that you should have declared it, and now you are wondering what to do.

Finding out that you have missed rental income on a tax return can be worrying, especially if it has happened over more than one year. The good news is that you can take steps to put things right. The worst thing you can do is ignore it and hope HMRC never notices. If you know there is an issue, dealing with it yourself is usually a much better option than waiting for HMRC to contact you first.

Why Do Most Landlords Forget to Declare Rental Income?

It happens more often than you might think. You might have started renting out your old home after moving somewhere else, or you could have inherited a property and decided to let it out. Perhaps a property was rented for only part of the year, so you did not think much about the income at the time. In other cases, landlords assume that because most of the rent goes towards the mortgage and other property costs, there is no tax to pay.

That last point is particularly important. Your rental income is not simply the amount of money left in your bank account after paying the mortgage. You need to work out your rental income and consider which expenses can be deducted when calculating your taxable profit. If you have not done this before, it is easy to get the figures wrong or overlook something that should have been included.

This is what you need to do if you too have forgotten it and now want to fix it:

1. Start by Working out What You Missed

Before you panic, get your paperwork together and work out exactly what happened. Go through your bank statements, tenancy agreements, letting agent statements, invoices, receipts and previous tax returns. Look at each tax year separately rather than trying to work out one large figure covering several years.

You need to know how much rental income you received and which costs relate to the property. If you cannot find every receipt or statement, do not simply make up a figure. Use the information you have available, make a reasonable calculation and keep a note of how you reached it. Having a clear record of your calculations will make things much easier if you need to explain them later.

2. Check Your Previous Tax Returns

You might find that the situation is not quite as bad as you first thought. Perhaps you declared rental income for some years but missed it for another. Maybe you included one property but forgot to include another. Checking your previous Self Assessment returns will help you understand exactly what has and has not been reported.

This is also a good point to get professional advice if the situation is complicated. Several properties, multiple tax years, overseas rental income or other sources of income can make the calculation harder. It is better to spend some time getting the figures right now than to submit another incorrect return and create an even bigger problem later.

3. Do Not Wait for HMRC to Find It

If you know you have undeclared rental income, leaving the issue alone will not make it disappear. HMRC has ways of checking information, and waiting until they contact you can make an already stressful situation harder to manage. Taking the first step yourself shows that you are trying to correct the problem rather than continuing to leave it undeclared.

If you have previously failed to tell HMRC about residential rental income, the HMRC let property campaign may provide a way to make a voluntary disclosure and bring your tax affairs up to date. You will need to work out the income and tax involved, disclose the relevant information and deal with any penalties and interest that apply to your situation.

What If You Cannot Pay the Tax Straight Away?

This is one of the first questions most landlords ask after discovering an old tax problem. You might be able to calculate what you owe, but that does not necessarily mean you have the money sitting in your account. If the amount covers several years, the total can be more than you expected.

Do not let that stop you from dealing with the problem. Once you know what you owe, you can look at your payment options and speak to HMRC about your circumstances. Trying to hide the problem simply because you cannot afford to pay the full amount immediately is unlikely to make things easier. At least when you know where you stand, you can start working towards a solution.

Remember That Your Other Income Can Affect Your Tax

Your rental income is only one part of your overall tax position. If you also have a job, run a business, receive a pension or have other taxable income, these amounts can affect your overall tax calculation. This is particularly worth remembering if you became a landlord while already earning money elsewhere.

For example, self employed people who also receive rental income need to look at both sides of their finances when working out their tax position. Keeping the rental figures separate can make your records easier to manage, but you still need to consider how everything fits together when completing your tax return.

What Should You Do From Now On?

Once you have sorted out the missed rental income, make things easier for yourself in future. Keep your property records together rather than leaving receipts in different drawers, emails and folders. Save your letting agent statements, invoices, receipts and other property-related documents throughout the year. If you have more than one property, keeping a separate record for each one can save a lot of confusion.

It is also worth reviewing your rental figures regularly instead of waiting until tax return time. You do not need to spend hours on this every month. A simple system that records your rent and relevant expenses as they happen can make the whole process much less stressful when you eventually need to prepare your tax return.

Do Not Let a Mistake Sit There!

Realising that you forgot to declare rental income can be uncomfortable, but making the mistake is not the end of the story. What matters now is what you do about it. Most importantly, do not keep putting it off because you are worried about what might happen. Knowing the problem is there and doing nothing will only leave you with more uncertainty. Once you deal with it properly, you can move forward knowing that your rental income is being handled correctly.