HMRC Campaign for Tax Evasion of Rental Income
Voters across the country are keen to see that the government is tackling the problem of unpaid taxes. Whether the problem stems from large multinational businesses like Google or McDonalds, or from individuals running small businesses and renting out as part of a buy to let scheme, the government are keen to collect the tax that they are owed.
One of HMRC’s latest methods of encouraging landlords to pay taxes on their undisclosed rental income is the Let Property Campaign. The campaign was established right at the end of 2013 and was intended to last for about eighteen months. But because of the success of the scheme, the government have decided to keep it in operation, and it is currently uncertain just how long it will go on for. We at The Accountancy Solutions as specialist accountants for tax avoidance have taken on a large number of cases since 2013 on behalf of people who need help meeting HMRC’s demands under this scheme, so this will come as good news for them!
So, if you own a buy to let property and HMRC haven’t yet reached out to you, they are likely to in the near future. Read on to find out more about your options if they do.
What is the ‘Let Property Campaign’?
According to HMRC, the point of the campaign is ‘to help those that are not paying the correct amount to put that right’. They describe this campaign as ‘an opportunity for landlords who owe tax through letting out residential property, in the UK or abroad, to get up to date with their tax affairs in a simple, straightforward way and take advantage of the best possible terms.’ The Let Property Campaign is not to be confused with the Property Sales Campaign’, which ran until August 2013. That particular campaign was to target undeclared capital gains tax from property sales.
As a part of this campaign, HMRC send out letters to landlords who they suspect of not having paid what they owe. They use data from rental incomes and trends across the United Kingdom to calculate exactly what rent you probably received over the tax year, and through that, whether you paid enough in taxes. The campaign is geared particularly towards buy to let landlords, who often accidentally fail to declare the entirety of their profits, or are unsure of what to declare and what not to declare.
Because of the nature of rental income, HMRC has not targeted those who avoid declaring tax on it as much as they could have. More often than not, ‘tax avoidance’ in this context is down to simple mistakes as opposed to deliberate efforts to avoid paying. This is understandable, since small businesses and sole traders file their own taxes year on year, but declaring rental income is often the first experience of declaring one’s own taxes that landlords encounter.
Specifically, HMRC have said that the campaign is intended to target:
- landlords who let out multiple properties
- landlords who let out a single property
- specialist landlords with student or workforce rentals
- landlords who let out holiday rentals
- renting out a room in your main home for more than the Rent a Room Scheme threshold
- those who live abroad or intend to live abroad for more than 6 months and rent out a property in the UK, who may still be required to pay UK taxes
As should be obvious, the Let Property Campaign is therefore set up to target small fish, not big fish. HMRC already target businesses both small and large through closing tax loopholes and encouraging workers to report businesses that fail to pay taxes correctly. So this particular campaign is something of a surprise for landlords, for whom this is often the first experience of HMRC’s tax collection tactics.
Unfortunately, the campaign does not extend to landlords who let out non-residential properties. This means that landlords who rent out a shop, a garage or a lock-up can’t take advantage of the scheme. Moreover, the scheme is geared towards individuals as opposed to trusts. The campaign is run by sending out letters to suspected tax avoiders, based on the usual complex calculations run by HMRC.
What benefits could I receive by making use of the Let Property Campaign?
This, of course, is just the latest in a long line of HMRC campaigns to try and rake in back taxes. But unlike those previous efforts, there is no disclosure window under the Let Property Campaign. This means that you are not required to disclose what you owe by any specific date, except before the end of the scheme; but as things stand, there is no clear end date to the Let Property Campaign. Once you do let HMRC know that you have undeclared tax payments to make, you have three whole months to provide them with all the details they need.
The main benefit that you would receive if you disclosed your income through this scheme is that you would receive penalties of a lower grade than if you delayed. This is regardless of whether you made a mistake submitting your taxes one year- or even several years in a row- or whether you deliberately avoided paying taxes over a period of time. All things considered, you would still receive a better deal than if you allowed HMRC to conduct an investigation without informing them of your intention to declare.
Once HMRC understand that you have undeclared taxes, they would most likely require further co-operation, and more paperwork (unless you make use of a tax accountant, that is). And when you do declare that you would like to co-operate with HMRC, you can tell them as part of your disclosure how much of a penalty you believe you owe. This penalty is calculated depending on the reason why you failed to pay the right amount of tax in the first place.
Of course, the penalty will be higher if you made a deliberate attempt to avoid paying tax, but it will still be lower than if HMRC come to that conclusion on their own. That being said, it’s entirely possible that if you made an innocent mistake, you won’t be required to pay any penalty at all. And if the total is too much to pay in one lump sum, payments can be spread over an extended period of time. This is one of the core benefits of the scheme for taxpayers.
Another bonus under the scheme is that if you are registered for Self-Assessment tax returns, and you completed those returns within the correct time period but made a mistake somewhere in the forms, the maximum you will pay is for six years. This is whether you miscalculated for six years or for more than twenty, so it could mean that you avoid paying quite a large sum. On the other hand, if you don’t admit your mistake, then you could be liable for undeclared income going back twenty years, and in the worst case scenario you could be subject to a criminal investigation. The whole point of the Let Property Campaign is to avoid all of this.
What if I choose to ignore HMRC’s letter?
If we had to compile our advice into two words here, they would be: please don’t! HMRC have been running this campaign for years, and that’s because it has been rather successful. The basis of this success is that their investigations are the result of real information, so they’re not sending you a letter on the ‘off chance’ that you might have back taxes to pay. And if you force HMRC to conduct an investigation, you may have to pay a penalty of up to 100% of the unpaid tax.
Generally, HMRC’s information has come from one or more of these sources:
- Individuals’ UK tax histories, with information on income and outgoings,
- Anonymous sources that file a complaint with HMRC about somebody they believe to be receiving untaxed income.
All of this is to say that it would be foolish to ignore one of HMRC’s letters under the Let Property Campaign; because they probably wouldn’t have reached out to you if they felt that an investigation would be unsuccessful. The whole point is that it saves them the time and money of investigating you. But if you do ignore their letter, they will have no choice but to look into the matter themselves, and that could mean that you pay substantially more and could even face prison time.
What if I don’t receive a letter under this campaign?
If you have earned undeclared income through your rental property, you absolutely should not wait until you receive one of these letters to take action. HMRC have designed the campaign so that anybody who takes up their offer of declaring their taxes will be penalised less than they normally would. On the surface, that’s quite an appealing offer; HMRC writing to you to tell you that they suspect you of having made undeclared profits, but nevertheless asking for much less in penalties. It’s no surprise that many people have taken up that offer, and made the scheme a success.
But what those people don’t appreciate is that declaring their income through the Let Property Campaign won’t get them the best deal. So what will? Speak to your tax accountant and they’ll tell you: reach out to HMRC proactively, and it will net you the least possible penalties. This is despite how HMRC like to dress up the scheme and how they might tell you that these really are the ‘best possible terms’ you’ll be able to get. That being said, once you do get a letter, you really do only have two options: declare your unpaid taxes and face the penalties, or let HMRC investigate you and face severe penalties!
So, if you don’t receive a letter, by far the best option is to let your tax accountant know that you have undeclared income that you would like to pay tax on. Then, they can do the rest: reaching out and liaising with HMRC, and dealing with every ounce of paperwork. There are specialist accountants for tax avoidance who deal specifically with issues such as these, and there are accountants in London and Birmingham, as well as around the country, that can help to solve your problem. Unfortunately, once you receive a letter under this campaign, any declaration of unpaid taxes that you make will be considered to have been instigated by HMRC. That means that the least possible penalties you would be made to pay would be under the Let Property Campaign.
What should I do now?
Our advice is then to go with the flow, contact your tax accountant, and let them do the dirty work. Calculating the amount of tax owed on income and expenditures can be complicated at the best of times, which is why most people rely on tax accountants to take the hassle out of dealing with HMRC. The problem is only compounded by the fact that unpaid taxes can date back for years- it can be difficult compiling all of this information in just three months, especially if this is your first time having to declare your own taxes.
If you choose to go through with it alone, there are forms that can be found on HMRC’s website. The forms themselves can be quite complex to fill out, and once HMRC have that information, it’s likely that they’ll want more. But fortunately, The Accountancy Solutions are specialist accountants for tax avoidance who deal with these kinds of problems on a daily basis. Our advice is to seek out a professional to help you with these issues, as soon as they come up.