The past six months has been a busy period for us at Edge Tax, dealing with tax investigations from HMRC under the Government’s relatively new Let Property Campaign.
Launched in the autumn of 2013, the campaign is part of HMRC’s efforts to clamp down on tax avoidance in the property sector and close the gap between what is owed and what is collected.
Historically, the barks of these types of campaigns have been worse than their bites. The ball has been slow in getting rolling with this one, too.
But the indications show that the campaign is starting to hot up. The past six months have seen our Let Property Campaign client list doubling in size in comparison to last year.
And within a few weeks we will discover how much tax has been collected under the campaign during the course of the past 12 months. We expect to see a significant increase.
Landlords who do not have their tax affairs in full working order would be well advised against complacency. With the onset of digital technology as an investigative tool, HMRC is equipped like never before to find out who is not paying their dues.
But many landlords may remain genuinely unaware of the campaign, not to mention the rules it is seeking to enforce.
Who does the Let Property Campaign apply to?
The campaign applies to individual landlords who are letting residential property in the UK or abroad, be that single or multiple properties. Specialist landlords, such as those renting student or workforce accommodation, are also being targeted. So too are those who rent out holiday homes, even if the owner resides there, or those who are renting out a room in their house for more than £7,500 a year, or £3,750 a year – figures apply from April 6th this year – if letting the property jointly.
The campaign allows landlords to report previously undisclosed rental income to HMRC as well as current undisclosed rental income. It does not apply to companies or trusts renting out residential property, or those renting out commercial property.
So why is HMRC targeting landlords, and why now?
Before the campaign started, it was estimated that there were approximately 1.4 million landlords operating throughout the UK, of which only 500,000 had registered for self-assessment and declared their rental income to HMRC, leaving some 900,000 who hadn’t declared their rental income. HMRC needed an effective way of collecting the tax owed.
The Let Property Campaign was therefore started in response to calls to crack down on tax avoidance, as a way of encouraging landlords to come forward voluntarily and disclose tax owed rather than leaving the burden on HMRC to contact landlords individually.
What information does HMRC have access to and what do they know about me?
HMRC gathers information through its award-winning computer system Connect, which accesses information from banks, past and present employment details, business material costs, profit margins, land registry information and even social media profiles.
Using this tool, HMRC is able to quickly build sector expertise, therefore identifying any obvious anomalies.
HMRC also gathers information by targeting estate and letting agents; issuing them with statutory notices requesting information on rent collected on behalf of landlords. Using this method of data collection helps HMRC to identify which landlords are not paying tax or the correct amount of tax. Agents have no option but to comply with the notice and pass the information to HMRC. They face fines if they don’t and there are substantial fines for inaccurate information, too.
What success has this campaign had so far?
By the end of January 2015, only 9,500 landlords had come forward to disclose £20m of unpaid tax, of the 900,000 landlords who have not declared their rental income. These are extremely poor results and HMRC will leave the disclosure window open for some time yet. We will see up to date figures on collected tax next month.
So why do I need to disclose under the campaign?
The campaign may have been slow in starting, but from now onwards it is only going to gather pace. The intent is there from the Government and HMRC has all the tools at its disposal to make investigations into landlords’ tax affairs much more likely.
The price of non-disclosure can be severe – penalties of up to 100 per cent of the tax due or even criminal investigation leading to possible prosecution.
Once the campaign closes, HMRC may well issue Accelerated Payment Notices (APNs) to ensure they receive their monies quickly, potentially putting landlords in serious financial difficulty.
And if you have already received a letter from HMRC advising you on the tax liabilities you have, then take extra caution. You are already on the investigators’ radar and it may only be a matter of time before the collectors come knocking.
We would advise landlords to disclose for a number of reasons. Firstly, settling on the best possible terms, puts landlords in a position to receive lower penalties and negotiate an affordable payment plan. Choose to delay, and HMRC may be less understanding.
Voluntarily disclosing through the campaign will also give peace of mind knowing that tax affairs are up to date and will mean a lower risk of investigation by HMRC.
If you need advice on the Let Property Campaign or are subject to an investigation, please contact us for a no obligation discussion of your situation. You can reach us on 01454 777831, visit www.edge-tax.com or email firstname.lastname@example.org.