Revenue are coming after landlords
We have warned landlords before about the purges on landlords. The cash strapped Revenue periodically announce that they are seeking to extract more cash from landlords.
Thanks to low interest rates, landlords are known to be making record rental profits and the HMRC are keen to take their share.
As part of this, it appears the HMRC are enlisting letting agents to snoop on landlords . Letting agents are being forced to comply with demands from the HMRC to complete returns about their clients, revealing names, rents, and rental property addresses.
Finance legislation gives Revenue unrivalled powers
You probably wont have heard of it but the Finance Act 2011. This piece of legislation and specifically Schedule 23 has given unrivalled powers to the Revenue to gather data that could be used to snoop on landlords. The information that they are getting letting agents to gather is:
the name and address of the landlord for whom the rents were collected; - the total gross rent collected from the tenant for the landlord for the year ended 5 April 2014; - the address of the let property to which the rent relates
Are the HMRC threats real?
August was also full of headlines shouting out that HMRC were sending out over 40,000 letters to suspected landlords? Did anyone get one?!
The war on landlords and taxpayers is very much a phoney war. The troops of the HMRC are very limited in number and they know that their bark and the fear factor is their greatest weapon.
There threat is a real one though. Ignorance is no defence when it comes to the law and the taxman. To pretend you didn’t know that you should have declared an income just won’t wash with the authorities, and particularly if you are a well educated professional. The tax authorities are keen to make examples of these type of landlords, using these cases to scare others into paying.
Recent examples of landlord prosecutions
There is some evidence that the Revenue are upping their activity against landlords. In August they said that 617 prosecutions had been brought against landlords in the courts in the financial year 2012/13. This was double the previous years total.
In terms of the types of action a landlord could face.
Last year, a landlord in Hertfordshire, Kevin Power, who rented out and then sold property was given a suspended one year prison sentence for evading £84,000 in tax. An even more extreme case, was for Luton landlord, Mohammed Kasim Farook, who was convicted and given an eight-year prison sentence for VAT and tax fraud amounting to £1.2m.
Are landlords paying too much tax?
If you think you are paying too much of your rental profits in tax, then you are not alone. We recently reported that the Chartered Institute of Housing were arguing for a more progressive tax policy to encourage higher standards in the private rental sector.
As it stands a landlord can off-set a considerable amount of allowable expenses of running a rental business against their rental profits. Make sure that you have a strategy in place for minimizing your tax bill.
We would always advise a landlord to claim all the allowable expenses on their rental property.
The reality is that evading tax is like playing Russian Roulette, you could be lucky, but on the other hand you might not.
Why not play it safe and use our Free Property Management software to calculate your tax return.