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Increased activity from the taxman in the private rented sector

publication date: Apr 20, 2007
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It has recently come to our attention that there has been an increased activity from Her Majesty’s Revenue and Customs within the Private Rented Sector. Some agents are advising that they have been contacted requesting a declaration of all landlords and their letting income under the Taxes Management Act 1970. This is a new experience for many and several have contacted Amersham asking if they really need to provide this information. The simple answer is yes - and within the timescale requested. They usually ask for the return within 28 days although it is likely to be a local inspector so this may vary and allow up to 90 days. What you can be sure of is that they will start chasing and taking action against anyone not providing the requested information within the timescale.

You should be perfectly clear that this is not related to the Non- Resident Landlords Scheme which requires a return to be made on and annual basis, without fail, by 5th July for the tax year which ended on 5th April prior. This is a requirement of the Finance Act 1995.

So why the increased activity? Having spoken to a tax inspector at a recent landlord seminar we understand that the Residential Letting landlord is a target market for the tax year 2007-2008. All very unfair? I can advise you that their estimate of taxes - being Income Tax, Capital Gains Tax etc. not being declared to Her Majesty’s Revenue & Customs by the Private Rented Sector is believe to be in excess of £4bn per annum. This effectively means you and I are paying approx 1.5p more in income tax than is necessary. I am sure that you will agree that this is a huge sum of money which, if collected, could save us all paying so much tax!. Several years ago the estimated figure within the M25 boundary was believed to be in excess of £2bn so it is not unreasonable to assume there could be a stronger concentration of effort within that area.

LANDLORDS WILL BE ASKING FOR YOUR ASSISTANCE

This will inevitably lead to landlords requesting information from agents because of the lost statements etc., and it may be that you can charge the landlord for providing this information and extra work. You could check your Terms & Conditions of Business to see if you have covered this eventuality. Consider changing your Terms of Business to allow it in the future.

Do your Terms of Business and your own business practice mention the possibility of HMRC requesting this information at all? Many of the Ts & Cs that I look at do not mention it, many of the negotiators who come on our Tax Course no nothing about it having taken landlord instructions to let property for years. A recent course included a delegate who had been in the industry for 10 years who had never told a landlord his rent was taxable and who in fact had advised landlords that rental income was taxable - in fact they would only had to declare the income if they were nonresident. This company owner, who was not a member, had been asked for the information by HMRC for all their landlords and did not provide it. He was fined £500 by HMRC, and was now, because of this and several other breaches of professional practice, being sued by a landlord. Remember if you operate as a Letting Agent, even on your first day, the public has a reasonable expectation that you will be a professional and know everything that a professional agent would know.

SO HOW ARE THEY FINDING LANDLORDS?

How are HMRC identifying landlords? It has been claimed that in Scotland they are currently looking at the details of Landlords registered under the Landlords Registration Scheme set up under the Anti Social Behaviour rules introduced in 2004. It is assumed that they will also use the data provided, by the scheme operators under the Tenancy Deposit Protection Legislation, to CLG, under the Housing Act of 2004. Again a sufficient amount of this information will be available to be useful to them. However they are also known to be phoning telephone numbers advertising property in the local papers and after getting the address of the property searching Land Registry to ascertain the details of the property owner. They will be doing even more but these are probably the most obvious ones from the anecdotal evidence being provided to ARLA.

Probably the greatest amount of Tax being evaded is Capital Gains Tax. Again this is being tracked down by searching Land Registry. It is acknowledged that this has had a considerable degree of success. Other than finding people committing a crime, Tax Evasion, is there a hidden agenda?

This is also possible as it has long been suspected that residential property is one of the biggest methods of trying to hide the proceeds of crime, not least drug money being used to buy property, often with a cash purchase and then when the property is sold the money has been successfully laundered. Two different criminal activities here.

A further suggestion - given informally by a Revenue Inspector - is that activity in the PRS could result in properties being sold off and as a result having the effect of slowing down the housing market. There is still a perception out there that Buy to Let is fuelling the property prices rises although on the other side of the argument is the comment from many local authorities that they could not meet housing targets without the benefit of the housing stock made available through Buy to Let. Joined up thinking or what!

ADVERTISING CAMPAIGN

To hammer home their message to the public, a new trade and national advertising campaign was launched in February advising landlords who let a room in their home or run a business, of the need to declare their earnings and pay tax on any profit.

Landlords who let multiple properties could be considered to be running a rental business. The campaign says that they should go to the HM Revenue & Customs (HMRC) website at www.hmrc. gov.uk/findout and click on the box that says ‘landlords’ to check if they are liable for tax.

If they are, they should contact HMRC for a self assessment and a land and property form, or register as self-employed by calling the Self-Employed helpline on: 0845 915 4515.

HMRC’s Director of Risk & Intelligence, Stuart Hartlib said: “The guidelines and advice on the website are not complicated, and information is just a click away. If landlords are self-employed they can download a form online, or call the Self-Employed helpline. Landlords should register with HMRC within the first three months of starting up a new business.”