Since launching its Let Property Campaign, as a way to let private landlords declare the proper amount of tax they should be paying on their rental income, in 2013, the government has raked in an extra £7.9 million in revenue. Efforts are now under way to force more landlords to get their tax affairs in order.
When the voluntary tax disclosure scheme began, HM Revenue & Customs started writing to at least 40,000 private landlords around the UK – including many people engaged in buy-to-let renting – asking them to get in touch and confirm they are paying the right amount of tax. Failure to comply within 30 days can result in stiff penalties, investigations and even criminal prosecutions.
The reason such a large number of private landlords have already been contacted by HMRC over their tax affairs is not necessarily because they’re trying to dodge the taxman. Instead, it’s more likely that with landlords, and casual buy-let-ones especially, there’s general confusion over what the rules actually are, and often such landlords simply don’t realise they have to pay more on their rental income. Many mistakenly assume their mortgage repayments are exempt from their tax burden, but it’s just the interest on the mortgage that can be offset.
HMRC fully understands that buy-to-let landlords might not be fully aware of what their tax liabilities may be with respect to what they earn in rent, and it is therefore adopting a soft approach in its dealings with such landlords, even allowing for easy repayment scheduling in cases where there’s a substantial amount of tax owed.
The process begins with a voluntary disclosure to HMRC about any property-related income that hasn’t been declared. Landlords are required to fill out an HMRC notification form, and they then have a period of three months to figure out what they owe and to pay it.
HMRC says its Let Property Campaign applies to people renting out just one property or a number of them, as well as what it calls “specialist landlords” – those who only rent their properties to specific groups, such as students or certain types of workers.
People renting out a room in their main homes may also be affected, particularly if they earn more than £4,250 per year from doing so, or £2,125 if letting it out jointly. You also won’t be exempt from HMRC’s attentions if you’re living overseas and renting a house or flat in the UK, or the reverse: living in Britain and renting a property overseas, as that’s part of your overall income and is therefore taxable. Finally, if you have a holiday home and use it yourself but at other times rent it out, you may also have to pay more to the taxman.
If you would like to know more about HMRC’s Let Property Campaign and exactly how much you should be paying on your rental income, here at Alpha Audit Services Limited we have the expertise you need to get the right answers and can negotiate on your behalf with HMRC in terms of fines and penalties. Contact us today to find out more and we will be pleased to help.