New Power Puts Landlords in HMRC’s Sights
If you are a landlord who has not declared their rental income and are using a letting agent, HM Revenue & Customs (HMRC) could soon be on your trail.
That is because HMRC now have a right to demand lettings agents disclose details of rents received on behalf of private landlords. The first year for which they are able to receive this information is the year ended 5th April 2018. Once a letting agent has been issued with a statutory notice, they have 60 days to supply the information. As is so often the case when dealing with HMRC, failure to comply can result in a hefty fine. An initial fine of £300 applies to those agents failing to meet the initial deadline, with a potential further fine of £60 per day for ongoing failure. Agents will also need to be careful to ensure that the information they hand over is correct. Providing incomplete or inaccurate information, whether through carelessness or deliberate choice, can lead to a further
HMRC’s campaign against landlords
It was estimated in 2013 that there are 1.4 million landlords in the UK. That being the case, HMRC would expect to receive that many returns each year. However, their figures show only 500,000 registered as declaring income. This means there are a potential 900,000 landlords who are not currently declaring their income from lettings.
Unsurprisingly, HMRC saw this as a potentially significant loss of tax revenue. Accordingly they launched the Let Property Campaign back in 2013. This offered landlords the chance to voluntarily come clean about their undeclared rental income. As an incentive, those using the scheme are offered much lower penalties than they would pay if HMRC identified the omission first. Based on figures they released on 31st March 2017, this campaign has resulted in more than £135m being paid over by landlords. Excluding the Offshore Disclosure Facilities, which look for undeclared income from other countries, this makes it the most successful campaign HMRC have run.
What determines the need to report property income?
Your reporting obligations are determined by the amount you receive from renting out property.
If your income is £1,000 or less, this is tax-free as a property allowance and no report is required. If your income is between £1,000 and £2,500 you need to notify HMRC you are receiving the income. They may then decide that you need to complete a return. If your income is above £2,500 after deducting allowable expenses or above £10,000 before deducting allowable expenses, then you must report your income on a tax return. If not registered to complete a return already, you must notify HMRC no later than 5th October after the end of the first tax year in which you received the income (5th October 2018 for income received in the year ended 5th April 2018). Notifying late may result in a late notification penalty.
If you make losses from renting property, it may be worth completing a tax return anyway. This is because those losses can then be carried forward to set against future profits from property rental.
Who can use the Let Property Campaign?
The Let Property Campaign can be used by any individual renting residential property within the UK, whether single or multiple units. This includes holiday lettings, rental of space in your own
home which exceeds the £7,500 Rent a Room Relief limit (£3,750 if shared) and non-UK residents who rent property in the UK. Where property is held jointly, all individuals are eligible to use the scheme.
The Campaign cannot be used by trusts or companies that rent out property of any kind. It is also not available to individuals where the property rented out is commercial instead of residential. HMRC provide an online questionnaire for those unsure if they qualify. (tinyurl.com/yb7w3nda)
Should I use the Let Property Campaign?
If you have undeclared property income, disclosure via the Let Property Campaign will be considerably cheaper than having HMRC discover it themselves. Their new power to query lettings agents makes such discovery much more likely. Even if you don’t use a lettings agent, HMRC also use Land Registry records to identify potential undeclared rentals. In certain cases, HMRC also have the ability to publish details of those they determine have deliberately evaded tax, so it is not just financial penalties you need to consider.
Disclosure is advisable whether you have deliberately not declared or simply not understood the
need to do so. The terms of the campaign, with reductions for voluntary disclosure, are a relatively cheap way of putting things right. You will have three months from the date of your voluntary disclosure to calculate and pay what you owe. If the sum due is too much for you to pay at once, HMRC can be willing to accept payment terms instead.
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