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Beware - HMRC tracking down landlords with undisclosed income

HMRC is intensifying its efforts to track down landlords with undisclosed income, a financial consultancy claims.

Perrys, a firm of chartered accountants, says this is despite HMRC’s Let Property campaign being regarded as successful with more than 58,000 disclosures and approximately £250m recovered in unpaid taxes.

However, Perrys says many landlords are now facing demands for back payment of taxes and associated interest, as well as facing large fines.

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The firm warns that penalties for undisclosed income can be hefty, ranging from 10 per cent and rising to 100 per cent of the rental income in some cases. 

Furthermore, landlords who receive letters demanding payment from HMRC will pay substantially more in fines compared to those who declare their income voluntarily. 

There are many reasons why someone might not have declared rental income to HMRC, suggests Perrys. In some cases, this could be because an individual became an accidental landlord. 

Perrys has out this this guide for landlords:

How does HMRC know if you have undeclared rental income?

HMRC has numerous ways to find individuals who haven’t declared rental income, and their resources for investigating are extensive. These include gathering information from HM Land Registry and Stamp Duty tax returns, reviewing reports from lettings agents and tenancy deposit scheme providers, carrying out online searches, making door to door enquiries, receiving reports from members of the public and collecting information from other government departments, such as the electoral register. The law allows HMRC to go back up to 20 years and, in some cases, HMRC may carry out a criminal investigation.

What happens if I don’t declare undisclosed rental income?

Regardless of your reasons and no matter how overwhelming it might seem, it is important to remember that not declaring rental income is a criminal offence - the longer you leave it, the bigger the tax bill and penalty you will need to pay. The good news is, there is professional support available to help you navigate the system and get your tax affairs in order.

Can undisclosed rental income affect my chances of getting a mortgage?

Yes. Any mortgage application you make will use your income to calculate how much money you can borrow as well as the interest you will pay. If you have not declared your rental income, then this amount cannot be accounted for as part of the application process as you will be unable to prove you are receiving it. This means you might not be able to borrow the amount you want and you could end up with less favourable terms, such as paying a higher percentage rate. More importantly, you might also find that you are unable to refinance your rental property at the end of a fixed term rate. This is because lenders will require copies of your tax returns, which show what rental income has been declared.

What is the best way to declare undisclosed rental income?

Do not wait until you receive a letter of demand from HMRC. Instead, you should speak to a professional, such as a specialist buy-to-let accountant like Perrys, who will be able to guide you through the process, calculate the tax you owe and ensure any mitigating factors are correctly applied.  

What should I do if I receive a letter from HMRC about undisclosed rental income?

If you have already received a letter from HMRC requesting payment for undeclared rental income and you haven’t yet come forward, then it is important you do not ignore it. Instead, you should contact a professional as soon as possible to discuss your options and get assistance with correctly calculating the amount you owe to avoid mounting bills and substantial penalties.

Want to comment on this story? If so...if any post is considered to victimise, harass, degrade or intimidate an individual or group of individuals on any basis, then the post may be deleted and the individual immediately banned from posting in future.

  • George Dawes

    I had a tax investigation once , apparently my turnover went down , that was the pathetic excuse they used . It was during a recession. doh !

    After months of so called in depth investigation they achieved nothing apart from wasting my time and government money . Mind you they had a nice jolly coming down to London etc .

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    I can bet there will be lots doing this, a lot register the council tax in the landlords name and the utilities…. Not easy to route out.

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    I'm reliably told that these investigations cost the revenue £30k per time to carry out, so they need to be looking at a lot of unpaid tax and fines to make them worthwhile. A friend of mine (motor trader) had a combined VAT and income tax investigation a few yrs back, his turnover was down one year, he had been very ill and spent a time in hospital, at the end of it all he had to pay them £2k, that was a waste of time and money wasn't it

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    If you are a landlord and are investigated, you could well find yourself out of pocket by a substantial amount if you don't enrol with your accountant into a tax investigation protection scheme.
    Also, the trick they use to relieve you of your money, is to try and negotiate a sum to prevent the investigation going any further.
    This happened to a dentist friend of mine and he paid up rather than allow them to dig deeper into his affairs.

     
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    I have tax investigation cover as did my friend mentioned above had, it costs me £60 a year each for myself and my wife, worth every penny

     
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    I was investigated a few years ago after having a drop in income due to being violently robbed while working as a taxi driver. It took over a year and the only thing they could find was that my accountant had mistakenly claimed about £80 in Trade Union subs. Presumably on the basis that as a self employed person the only point of paying a Trade Union was for the legal insurance that came with it. It was certainly the Union funded solicitor that got me a Criminal Injuries compensation payout and also compensation when I broke my ankle on a garage forecourt.
    It was fascinating how thorough the investigation was. All petrol receipts were analysed for date, time and amount. Questions were asked about if it was even possible to drive certain distances in a given time. I hate to think how many hours HMRC devoted to it.

    Realistically, these days with everything being billed and paid online it would be incredibly unlikely for the vast majority of experienced landlords to even attempt to conceal income. A few newbies may get confused about the various exemptions that apply to other types of letting such as Rent a Room or holiday lets and they may find the concept of Section 24 completely baffling.

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    I suppose we all had them investigations and more than once. They are certainly thorough and leave no stone unturned sometimes petty. I had them when I was doing Contract work but only in a small way, yet 2 of them gave whole in my front room going through every docket, receipt, invoices and Statements and going back years they had me up in the loft getting previous years but I had them all. My van was sitting outside my house probably only day ever with me and those two all day in my house and no work being done.
    Regarding residential I had investigation on that too I’ll just give one incident. I had a Flat let furnished and Tenant required me to get him a frying pan with a lid which I did £17. at the time. Revenue guy disallowed it with others that I still believe were justified. Anyway the Tenant left when his 6 months was up, low and behold he took the pan with him.

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