Undeclared income tax
In September 2013, HMRC launched its Let Property Campaign, which aims to collect undeclared income tax from buy-to-let landlords. Initially intended to run for 18 months, the scheme has remained active now for ten years.
In the past 12 months alone, HMRC has found 5,429 landlords who have failed to declare their full rental income on their Self Assessment tax returns. That means an additional £33m in undeclared revenue has been reclaimed, amounting to an average of £6,078 per landlord.
So does all rental income need to be declared to HMRC, and what are the penalties for undeclared income? Let’s take a look.
Do you have to declare rental income to HMRC?
In most cases, landlords need to declare rental income to HMRC. If the total income you receive from renting out all or part of a property (before expenses) does not exceed £1,000 in a tax year, there is no need to let HMRC know. However, any amount above £1,000 is subject to landlord tax, and must be declared. Failure to do so can result in heavy penalties.
How does HMRC know about undeclared rental income?
HMRC has several methods for uncovering undisclosed rental income:
- The Stamp Duty Land Tax (SDLT) records show all properties purchased in England and Northern Ireland. If multiple properties are purchased under the same name, some are likely to be rental properties.
- HMRC has connections with HM Land Registry, which holds records on properties and land sold in England and Wales.
- Estate agents can work on HMRC’s behalf to identify if rental activity has been undertaken
- Security deposits and electoral registers can also be used to link individuals to properties
What is the penalty for not declaring rental income HMRC?
There are heavy penalties for not declaring property tax for landlords. Under the terms of the Let Property Campaign, HMRC rental income can be reclaimed for up to 20 years, and fines of up to 100% of the outstanding tax can be issued. Should it deem necessary, HMRC can also file for criminal prosecution.
The penalties given are determined on a behavioural basis. That means if a landlord is thought to have made genuine errors with their accounting, the fines are typically more lenient. If, however, the inaccuracies are thought to be deliberate, harsh penalties are given.
How can you get your tax affairs in order?
The Let Property Campaign gives landlords the opportunity to retrospectively declare previously undisclosed taxes. Doing so will afford you much more leniency from HMRC. If you have undeclared income from property, you need to tell HMRC as soon as possible. From then, you have 90 days to calculate and pay what is owed.
The easiest way to ensure you’re complying with landlord tax rules is by engaging an accountant to help get your affairs in order. A buy to let accountant can look at your records and determine whether any tax is owed, as well as help you to stay on top of your landlord tax returns. For specialist advice and assistance, contact Ibiss and Co today. With offices in Barking, Tooting and Walsall, we’re well placed to serve landlords in London and the West Midlands.