Are landlords being targeted in the government’s tax clampdown?
If you’re a landlord and are unsure about current changes, The Hollies Bookkeeping can help.
Landlords are being warned that a clampdown on unpaid tax from rental properties is expected to intensify.
Experts point out that the government is looking to boost its funds following coronavirus spending – and that landlords who have failed to disclose their rental income may now be in their sights.
Morag Ofili, of law firm Harbottle and Lewis, said: “HMRC will be looking to claw back funds post coronavirus, and with significant wealth tied up in residential property, landlords will be seen as a political safe target.”
What is the HMRC Let Property Campaign?
HMRC launched a campaign in 2013 to encourage taxpayers to voluntarily disclose any tax that they owe on their rental properties.
When the HMRC Let Property Campaign was launched, it was predicted that as many as 1.5 million landlords had underpaid or failed to pay their owed tax in 2009 and 2010.
But seven years on from the campaign’s launch and an investigation by accounting firm Saffery Champness found that the numbers are significantly less.
It found that less than 60,000 landlords have made such voluntary disclosures to the taxman.
Its freedom of information request revealed that a total of 58,779 people had made the disclosures since the launch of the campaign in 2013. This is only 3.9 per cent of the original target.
Landlords might be unsure of their tax position
The amount of tax yield recorded by HMRC from these disclosures is £163 million, or less than a third of what was originally expected.
There were 16,318 disclosures in 2018 to 2019, up 147 per cent on the previous year – although this dropped by 55 per cent to only 7,362 disclosures in 2019 to 2020.
Experts believe the sharp increase in 2018 to 2019 can be attributed to a number of factors. These include the introduction of penalties on undisclosed income from foreign properties in 2018.
In addition, several property tax changes that have been introduced in recent years, including the reduction of tax relief for landlords.
Zena Hanks, of Saffery Champness, said: “All of these changes may have unsettled landlords unsure of their new tax position.”
A new digital system for paying tax
HMRC is hoping to reduce the number of mistakes in tax returns by introducing a new digital system for paying tax.
The new system is called Making Tax Digital and relies on landlords purchasing and training themselves to use the new software.
HMRC said its Let Property Campaign is an opportunity for landlords who owe tax through letting out residential property in Britain or abroad to get up to date with their tax affairs.
It said landlords have 90 days to calculate and pay any undue tax once it has been disclosed.