HMRC to review mortgage applications

[TooLateForAName]

http://www.contractoruk.com/news/00taxman_cross-ch...

Individuals who use fake income figures on their tax return or mortgage application are being targeted in a historical tie-up between lenders and HM Revenue & Customs.

According to the terms of what it called an “unprecedented opportunity”, HMRC said it would be paid £14 a time to check whether a mortgage applicant’s details match their tax declarations.

Where a lender believes that fake income figures have been presented, or suspects any other type of fraud, typically in order to borrow more money, they will send the applicant’s details to HMRC.

The Revenue will then check the income details given to the lender against information that individual provided in their income tax and employment returns.

“HMRC will then advise lenders whether or not the details correspond, which will inform lending decisions,” the Council of Mortgage Lenders said, welcoming the tie-up.

“As well as aiding mortgage fraud prevention, the scheme will help HMRC to risk assess whether the information it has been given on applicants’ tax affairs is correct. In return, lenders gain access to a source of data that helps them to lend responsibly and manage risk.”

Explaining the need for the Mortgage Verification Scheme, which was first announced in the Budget in March, the council said the cost of mortgage fraud in the UK came in last year at £1billion.

[Eric Mc]

Well well.

[98elise]

This should have happened before the country got into such a st state.

[LeoSayer]

What people earn is only one side of the story, but this sounds like a win-win.

[Countdown]

Don't banks ask to see HMRC Statements of Account anyway ??

Is the purpose of this to stop mortgage fraud or to stop tax evasion? or both?

[Eric Mc]

Countdown said:

Don't banks ask to see HMRC Statements of Account anyway ??

No.

In the "old days" before the advent of Self Assessment taxation (i.e. pre 1995), once accounts and tax returns for a given tax year had been submitted and agreed by the Inland Revenue (as was), self employed individuals or partners in partnerships were issued with a Notice of Assessment.
These Notices of Assessment were always asked for by lenders as they looked on them as reliable third party proof of an individual's income. It was the equivalent of looking at a P60 from an employee or a company director.

With the introduction of Self Assessment, the Revenue ceased issuing Notices of Assessment of this kind. In fact, they also ceased the practice of "agreeing" submitted accounts and tax returns full stop. The whole notion of the Revenue agreeing figures with taxpayers was abolished in 1995.
Under the Self Assessment system, most people only receive a Statement of Account showing how much tax they have to pay. The statement does not show their income for the tax year and nor does it show how the tax amounts due have been calculated.

On very rare occasions HMRC sometimes issue a Notice of Tax Calculation. These are usually issued when the taxpayer does not use an accountant and is relying on HMRC to calculate their tax liabilities for them. Most Self Assessment taxpayers do NOT receive these calculations. The only people calculating their tax is either themselves or their accountant/tax agent.

That is why banks are relying more and more on the accountants to supply the third party reliance that used to come from the Inland Revenue.

I often wonder if the advent of Self Certification was partly inspired by the disappearance of the old fashioned Notice of Assessment.
In other words, the Statement of Account reveals nothing that would be of assistance to a potential lender.

[Countdown]

Ah yes - apologies I meant the Notice of Tax thingy. I assumed it was issued to all self-assessment people but, thinking back, it isn't.

[rpguk]

Countdown said:

Is the purpose of this to stop mortgage fraud or to stop tax evasion? or both?

A bit of both, if the figures don't add up then it's an indication that either the individual won't be able to meet the payments which the bank wants to catch or they have more income then declared which HMRC would love to know.

This kind of joining up of the information held on various databases will become far more prevalent over the coming years, between various government departments themselves and other organisations.

[Eric Mc]

Countdown said:

Ah yes - apologies I meant the Notice of Tax thingy. I assumed it was issued to all self-assessment people but, thinking back, it isn't.

The only way to guarantee you get one of these is to make deliberate errors in your own tax calculations. Most people don't particularly want to do that and if they use an accountant they would not be too impressed if the accountant was deliberately miscalculating the tax just so that HMRC issued a corrected tax calculation.

[scotal]

Countdown said:

Don't banks ask to see HMRC Statements of Account anyway ??

Is the purpose of this to stop mortgage fraud or to stop tax evasion? or both?

This is to stop both. However the checks are at the lenders behest, and the intend carrying them out where there is a suspicion of fruad.
It could equally apply to PAYE borrowers as the self employed.

For the self employed, lenders ask for accounts, or SA302's or an accountants reference.
Sometimes they will work off projected numbers as long as they are received from a recognised Accountant.

As I said when this was raised last week, there will be some very nervous accountants around in the near future.
We're already seeing accountants try to add disclaimers to their numbers, which the lenders have already said won't wash.

[scotal]

Eric Mc said:

I often wonder if the advent of Self Certification was partly inspired by the disappearance of the old fashioned Notice of Assessment.
In other words, the Statement of Account reveals nothing that would be of assistance to a potential lender.

Self Cert was naive, either wilfully or by accident.

No-one will publicly admit that the possiblity that people might simply lie about their income was ever taken into account.
Add in a sales industry predicated to commission based selling where the self cert mortgage was seen as a godsend, and you have the problems that currently exist.

I don't beleive it was based on anything as complicated as a statement of account, it was rather based on greed.

[Eric Mc]

scotal said:

Eric Mc said:

I often wonder if the advent of Self Certification was partly inspired by the disappearance of the old fashioned Notice of Assessment.
In other words, the Statement of Account reveals nothing that would be of assistance to a potential lender.

Self Cert was naive, either wilfully or by accident.

No-one will publicly admit that the possiblity that people might simply lie about their income was ever taken into account.
Add in a sales industry predicated to commission based selling where the self cert mortgage was seen as a godsend, and you have the problems that currently exist.

I don't beleive it was based on anything as complicated as a statement of account, it was rather based on greed.

Of course it was, eventually.

But originally Self Certification of incme came in precisely for self employed individuals who could not produce wages slips or P60s. As I said, once the old fashioned Notice of Assessment as a trusted third party verification with a govvernment approval vanished, there were limited alternitives.

Once the snowball was rolling down the mountain, of course, they began to be used for all sorts of individuals.

[sharpfocus]

TooLateForAName said:

According to the terms of what it called an “unprecedented opportunity”, HMRC said it would be paid £14 a time to check whether a mortgage applicant’s details match their tax declarations.

if (applicant.income < selfcert.income) raiseTheAlarm();

^I'll do it for £13 a time?

TooLateForAName said:

Where a lender believes that fake income figures have been presented, or suspects any other type of fraud, typically in order to borrow more money, they will send the applicant’s details to HMRC.

Why would it be in the lender's interest at the point of sale to have these suspicions?

[scotal]

Eric Mc said:

But originally Self Certification of incme came in precisely for self employed individuals who could not produce wages slips or P60s.

There was never any restriction on who could self cert. IMHO it was an easy way to keep selling mortgages in a very competitive market.

[scotal]

sharpfocus said:

Why would it be in the lender's interest at the point of sale to have these suspicions?

To prevent fraud, they aren't keen on lending to those prepared to lie from the off.
To not lend money to someone who doesn't have a hope in hell of repaying it.

To show what responsible lenders they all are.

There will I suspect be "Intermediary only, not for public disemmination" emails out from the less salubrious end of the mortgage market pointing out that they will not use the HMRC referencing service.

[Eric Mc]

scotal said:

Eric Mc said:

But originally Self Certification of incme came in precisely for self employed individuals who could not produce wages slips or P60s.

There was never any restriction on who could self cert. IMHO it was an easy way to keep selling mortgages in a very competitive market.

Even as far back as 1995?

[DS3R]

I'm quite surprised at the way this has finally worked around.

HRMC are effectively to make profit by employing staff to verify income tax figures for mortgage lenders.

The alternative has long been the possibilty that mortgage lenders would be obliged to get HRMC to confirm.

So the good news is it is discretionary (at the moment). The not so good news is that the second this is proven to work (and one instance of a discrepancy will be sufficient), the latter option is probably the one that will be taken.

Which is annoying, because it will mean MORE civil servants are employed, and any time someone wants to apply for a mortgage, they risk having yet another hurdle get over, and yet another cost and delay.

[Eric Mc]

I can see awful problems with this.

What if HMRC verifies someone's income and then discovers through a tax investigation that the income they verified was not correct. As I explained earlier, HMRC do not agree any income figiures any more so their verification of income will always have Zero legal standing. I bet they won't want to held to account for any income verifactions they give on behalf of taxpayers either.

I don't see lenders going for this.

[Beardy10]

Eric Mc said:

I can see awful problems with this.

What if HMRC verifies someone's income and then discovers through a tax investigation that the income they verified was not correct. As I explained earlier, HMRC do not agree any income figiures any more so their verification of income will always have Zero legal standing. I bet they won't want to held to account for any income verifactions they give on behalf of taxpayers either.

I don't see lenders going for this.

I disagree....whilst HMRC may not check the data it's a good source of information for lenders and is a good check and balance. It will certainly stop people inflating their claims of income of mortgage applications as to do so would give potential for a tax investigation.

If people have declared less income than they have actually earnt it means they will be able to borrow less so it may even encourage people to declare their correct income.

[Eric Mc]

Beardy10 said:

Eric Mc said:

I can see awful problems with this.

What if HMRC verifies someone's income and then discovers through a tax investigation that the income they verified was not correct. As I explained earlier, HMRC do not agree any income figiures any more so their verification of income will always have Zero legal standing. I bet they won't want to held to account for any income verifactions they give on behalf of taxpayers either.

I don't see lenders going for this.

I disagree....whilst HMRC may not check the data it's a good source of information for lenders and is a good check and balance. It will certainly stop people inflating their claims of income of mortgage applications as to do so would give potential for a tax investigation.

If people have declared less income than they have actually earnt it means they will be able to borrow less so it may even encourage people to declare their correct income.

It may be a useful guide but how much reliance will they put on it? And if it wrong, what liability has HMRC got?

What data would HMRC be providing?

Tax information is supposed to be absolutely confidential.