Landlords will come under increasing scrutiny

A report by Her Majesty’s Revenue and Customs Office (HMRC) suggests that property investors who typically cover their properties with landlord insurance are responsible for evading taxes on a massive scale.

Earlier this year HMRC set up a task force to investigate the financial affairs of landlords in Leeds, York, London and East Anglia and if the investigative website Exaro’s information is correct then there is little wonder why. According to Exaro a report by HMRC estimates that landlords evaded paying over half a billion pounds in tax in 2009/10. The figure is quite amazing and when compared to the amount collected from the sector, £1.8 billion, it shows just how big a problem tax evasion is.

In fact the figure may be much higher as the projected data only covered landlords who do not file under self assessment, the final figures could easily be double and maybe more; it certainly puts the target of a £17 million claw back from the task force teams into miniscule proportions. John Whiting, director of tax policy at the Chartered Institute of Taxation, said “Widespread tax evasion by landlords was very significant which might normally only be expected in the worst cash businesses. Clearly, rental income is an area where HMRC needs to pay more attention. On this scale, it is serious tax evasion.”

The problem for HMRC is the massive growth in the letting sector over the last few years with people who cannot afford to live in their own home renting out a part of it, or all of it, reluctantly. They are not likely to divulge the extra amount of money they need to bring in to the taxman and some will not even be aware that they should.

It is likely that HMRC teams will turn to Land Registry records to track down the culprits but a spokesman for the department did say that a crackdown next year was likely to set out a ‘tax amnesty’, which offers reduced penalties for people who come forward willingly to settle unpaid liabilities.

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