HMRC has made it clear that private landlords in some areas can expect a knock on the door in the coming weeks as it launches a special taskforce to investigate and recover up to £17m in unpaid taxes.
However, it is unclear what has prompted the investigation, and HMRC did not respond to our requests for clarification.
The initial announcement was confusing, as although it was headed ‘HMRC targets property rentals’ it referred to ‘transactions’ – a word more often used in property sales rather than lettings.
The announcement said: “A new taskforce to tackle tax evasion on property transactions was announced today by HMRC.”
The taskforce is initially focusing on private landlords in East Anglia, London, Leeds, York, Leicester, Nottingham, Lincoln, Durham and Sunderland, but could easily be extended to cover the whole country, warns accountants and business advice firm James Cowper.
Stephen Barratt, private client director at James Cowper, said: “Landlords can reasonably expect HMRC to gather information from across government departments, and many other sources including press and internet advertisements, universities and colleges.
“HMRC is also using increasingly sophisticated techniques to identify those who are not paying sufficient tax, and the chances of going undetected are rapidly vanishing.”
The firm believes that it is not just unpaid income tax that HMRC will be looking for, but unpaid VAT.
Many landlords providing temporary accommodation – perhaps to seasonal agricultural labourers, students or even homeless people – may not realise that VAT is chargeable on temporary accommodation as HMRC treats it in the same way as hotel or guest house accommodation.
Landlords may not be registered for VAT when they should be and so could face a back-dated VAT claim.
James Cowper offers this advice to those who individuals who believe they may have an outstanding tax liability:
Do not approach HMRC directly without first speaking with your accountant or tax adviser. HMRC are increasingly tough negotiators, and without detailed knowledge of the tax system a larger tax bill and penalty than necessary could be charged.
Do not ignore this clampdown. It is possible that HMRC is already aware of your financial details and so, having publicly drawn attention to this area, it is likely that future penalties might be higher.