Insights

According to HMRC, the total value of unpaid taxes last year was £500m. Various initiatives have been launched targeting different sectors of the taxpaying community to try and recover this money, and the latest, the ‘Let Property Campaign’ is aimed at those renting out residential property.

It is possible that this is the sector which HMRC believes is most likely to be contributing to its revenue shortfall; as many residential landlords are paying tax on their income through the PAYE system they may have invested in property but may not be completing self assessments to declare this additional income.

Residential landlords targeted for tax underpayments

The ‘Let Property Campaign’ is aimed at any landlord who is either deliberately or mistakenly underpaying tax on rental income received from buy-to-let property, student accommodation or furnished holiday accommodation. The campaign is offering anyone who believes they may have a tax underpayment on rental income the opportunity to correct the position and be charged a reduced penalty for doing so voluntarily. Importantly, there will be a distinction made between residential landlords who have deliberately underpaid taxes and withheld information and those who have made a genuine mistake. The level of penalty charged will reflect this.

Unusually, no end date has been provided for this initiative and it is expected to last for around 18 months, which serves as an indicator of how widespread HMRC believes the problem of tax underpayment amongst residential landlords is.

Multiple methods for identifying offenders

HMRC have a variety of means at their disposal for detecting offenders. They have access to land registry and mortgage information and they also use software to model spending patterns vs. income levels. Given the sophisticated and targeted approach of HMRC, the chances of being able to consistently under declare rental income are low.

Tax position

If you have under-declared rental income, even if you believe you have made no profits because the income is covered by expenditure, you now have an opportunity to bring your affairs up to date. Whilst HMRC will charge penalties, plus interest on under-declared profits, the amounts will be known from the outset, and you will be in a position to budget for the liability.

Voluntary disclose is always viewed more favourably than if you are approached by HMRC. However, before making contact, speak to your tax adviser who can provide advice on the best way to proceed. They will have a much more detailed knowledge of the way HMRC will be likely to react to the disclosure, and the level of seriousness they will assign to each case. Be prepared to fully disclose everything concerning your affairs when you do make a disclosure; it is likely HMRC already has detailed financial information about your case and untruths or information withheld at this stage will mean harsher penalties.

Review of company director record keeping

A further campaign is aimed at company directors, to identify those who should have submitted a self assessment and have failed to do so, or those who have not declared all their directorships and sources of income. Letters have been sent to targeted individuals asking for them to provide HMRC with full details of their employment – full time and part time, and details of company shareholdings where dividends have been received.

If you have received an enquiry letter from HMRC, would like advice on making a disclosure or are a residential landlord wishing to discuss your tax liabilities, please contact Anne Eager by emailing ae@rjp.co.uk.