Every so often HMRC identify a self-employed sector of the population and launches a mini-crusade against them in order to clamp down on tax avoidance and evasion.
In the late 1990s it was IT contractors, one-person limited companies who worked on long-term contracts alongside permanent staff at much higher rates of pay but with none of the benefits of permanent employment - sick pay, maternity pay redundancy rights etc. That particular fight between the contractors and the (then) Inland Revenue rumbled on for years.
Recently HMRC have turned their attention to landlords, particularly buy-to-let landlords with multiple properties, and are in the process of sending 40,000 of them letters requiring them to get in touch to discuss their affairs.
The letter reads: “HMRC has data related to landlords and is comparing this with what individuals have or have not told us. This letter is the first stage following that process as HMRC is aware you are a landlord who is letting property and that you may be liable for tax on any income.”
Anyone receiving a letter has just 30 days to contact HMRC or face a process which includes fines and criminal investigation; four landlords have even been ‘named and shamed’ on HMRC’s latest list of tax defaulters.
The reason for this crackdown is that fewer than 500,000 taxpayers are registered with HMRC as owning second properties, but the true number of landlords is estimated to be more like 1.5 million, leaving a shortfall of 1 million people collecting rent but not declaring it as income. The unpaid tax is estimated at around £500 million annually, which sounds a lot but is less than certain individual US firms should be paying, and aren’t. But that’s another story.
The HMRC team tasked with collecting this money have used data mining and wide-reaching powers to gather information on landlords, looking at the electoral roll, Land Registry, housing benefit records, and even insisting that letting agents supply them with details of every landlord on their books. Some accountants dealing with HMRC on behalf of clients have reported HMRC using social media to identify where holiday homes are being advertised to friends, and looking to see whether that income has been declared.
“The message for all landlords owing tax is simple – it is better to come to us before we come to you.” - HMRC spokesman
Unfortunately even if you’ve scrupulously declared your rental income you will still have to provide HMRC with the information they ask for, plus you may be asked about further information about how your rental property was acquired, for example whether it was purchased or inherited. As with any dealings with HMRC, the clearer and more complete your records, the easier it will be to show you’ve paid what’s due.
Specialists landlords’ insurance policies usual offer tax investigation insurance among their benefits – we would advise checking your policy and adding this extra cover if it’s not already included. Also worth noting that tax investigation insurance is free with National Landlords Association membership at Basicplus level or above, a valuable benefit.