Letting agents are being targeted by HM Revenue & Customs (HMRC) with statutory notices issued to demand details of rents collected on behalf of private landlords.
The threat to those who rent properties but don’t file a tax return being caught by HMRC is now very real with letting agents now forced to hand over 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 5 April 2013.
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?
An estimated 1.4 million landlords operate 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 to encourage landlords to come forward about undeclared rental income. HMRC estimates as much as £550 million in tax is underpaid by property landlords each year and on announcing the scheme in October 2013, chief secretary to the Treasury, Danny Alexander said it’s time for landlords to “pay up or face the consequences”.
As well as writing to letting agents, HMRC has also posted waves of letters direct to private landlords as part of the Let Property Campaign.
Reporting 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 you may want to register for a tax return voluntarily. That way you can document your losses and carry them forward to offset against future profits.
Who can use the Let Property Campaign?
You can report previously undeclared rental income to HMRC if you’re an individual landlord renting out residential property.
This includes those who are:
- Renting out a single property
- Renting out multiple properties
- A specialist landlord, e.g. student or workforce rentals
- Renting out a room in your main home for more than £4,250 a year or £2,125 a year if letting the property jointly, i.e. above the ‘Rent a Room Scheme’ threshold
- Living abroad and renting out a property in the UK
- Living in the UK and renting a property abroad
- Renting out a holiday home even if you use it yourself
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.
Those who are unsure whether the Let Property Campaign is applicable to them can use HMRC’s useful questionnaire to help you make the right decision.
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 to calculate and pay what you owe from the date of your voluntary disclosure.
How we can help
Your local TaxAssist Accountant can get your affairs up to date with HMRC, from registration, to calculation of your income, to completion of the tax returns. We can liaise with HMRC on your behalf and deal with their correspondence.
We can also review your affairs to ensure that you are trading using the right structure for you, whilst claiming all of the expenses you’re entitled to.
And our work doesn’t stop there; we can help you manage your portfolio right 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
Last updated August 2014
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.