Letting agents are being targeted by HM Revenue & Customs with statutory notices issued to demand details of rents collected on behalf of private landlords.
The threat of being caught by HM Revenue & Customs (HMRC) is now very real as it has become mandatory for letting agents to disclose details of rents received on behalf of private landlords or face a significant fine.
Agents will be required to let HMRC know about rents collected from tenants on behalf of landlords who have used their letting agency services in the year ended 5th April 2018.
Once statutory notices are issued, letting agents have 60 days from the date of the notice to return the information to HMRC. Failure to comply with the notice will result in an initial £300 penalty and up to £60 a day for a continuing failure.
Letting agents should also ensure they provide wholly accurate information as HMRC can charge a penalty of up to £3,000 for any careless or deliberately inaccurate information submitted.
Why is HMRC targeting landlords?
In 2013, there was an estimated 1.4 million landlords in the UK with only 500,000 said to have registered and declared their rental income with HMRC – leaving a shortfall of around 900,000 landlords.
As a result, HMRC launched the Let Property Campaign in 2013 to encourage landlords to come forward about undeclared rental income. In the last figures released by HMRC at 31st March 2017, HMRC had generated more than £135m from the Let Property Campaign. Other than the Offshore Disclosure Facilities, it has been HMRC’s most profitable campaign.
Do I need to declare my property income to HMRC?
When you start renting out property, you must tell HMRC and you may have to pay tax. If you don’t, you could be charged a penalty. You must report income from property rental if you receive:
- £2,500 or more from property after deducting allowable expenses
- £10,000 or more from property before deducting allowable expenses
If your property income does not meet either of these thresholds, you must still call HMRC – and possibly the Tax Credits Office – to advise them of your new income.
If you make a loss on renting, you’re unlikely to meet these thresholds. But as accountants we often recommend that you seek confirmation from HMRC that it doesn’t require a tax return from you. Furthermore, you may want to register for a tax return voluntarily if you have losses you’d like to document and carry forward.
If you have rental income to declare during the year to 5th April 2018, you will need to inform HMRC by 5th October 2018.
Who can use the Let Property Campaign?
You can use the Let Property Campaign to report previously undeclared rental income to HMRC if you are an individual landlord renting out residential property.
- Those who have multiple properties
- Landlords with single rentals
- Specialist landlords with student or workforce rentals
- Holiday lettings
- Renting out a room in your main home for more than the Rent a Room Scheme threshold (£7,500 for 2017/18 or this is halved if you share the income with your partner or someone else)
- Those who live abroad or intend to live abroad for more than six months and rent out a property in the UK, as you may still be liable to UK taxes
You’re not able to use this scheme to declare undisclosed income if you are a company or a trust renting out residential property or if you’re renting out commercial property.
If you are unsure whether the Let Property Campaign is applicable to you, this useful HMRC questionnaire will help you to make the right decision.
Should I use the Let Property Campaign?
If you’re using the services of a letting agent, time could be running out for you, as HMRC is using its powers to force letting agents to have over the details of all the landlords they’ve been acting for.
Regardless of whether the errors were due to misunderstanding the rules or deliberately avoiding tax, it is better to come forward rather than waiting for HMRC to finds the errors. By making a voluntary disclosure and informing HMRC, you can get the best possible terms on the outstanding tax you owe. You’ll have three months from the date of your voluntary disclosure to calculate and pay what you owe.
If you cannot afford to pay what you owe in one lump sum, HMRC may allow you to spread your payments depending on your situation.
If HMRC discovers you have not been declaring your rental income and have deliberately evaded your responsibilities, in certain circumstances it may publish your details in the media.
How we can help
Your local TaxAssist Accountant can get your affairs up to date with HMRC, from registration, to calculation of your income and completion of your tax returns. We can liaise with HMRC on your behalf and deal with its correspondence.
We can also review your affairs to ensure you are holding your property in the right structure for you, while claiming all the expenses you’re entitled to.
Our work doesn’t stop there – we can help you manage your portfolio through its lifecycle, from buying to selling the properties. Together, we can plan for the future and look to minimise potential tax burdens.
By Jo Nockels FCCA
Last updated May 2018
Disclaimer: The information provided is based on current guidance (at date of publication) from HMRC and may be subject to change. Any advice shared here is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.