Posted on 24 September 2014
HMRC are continuing their focus on buy-to-let landlords who may have underpaid tax on their rental income by sending out 40,000 letters asking the recipient to contact HMRC to confirm details of their tax affairs or run the risk of a tax investigation. The letter provides the taxpayer just 30 days to respond before HMRC escalates its investigation into their tax affairs.
The letter also warns that taxpayers who do not contact HMRC voluntarily to discuss their tax affairs are at risk of a “higher penalty or … criminal investigation.”
HMRC’s continued focus on buy-to-let landlords is being partly driven by its investment into a huge database system which it is now using to provide information into the tax-affairs of targeted groups, such as buy-to-let landlords.
The campaign, which applies to all residential property landlords, including those with just a single rental, student or holiday letting, began in October 2013 when HMRC urged landlords to come clean about any undeclared rental earnings and any inaccuracies on their tax returns.
Since the campaign started HMRC has begun gathering information on landlords from a much wider range of sources, including using its new computer systems to identify housing benefit payments that go directly to landlords and monitoring social media for signs that taxpayers are letting their second home without declaring the income. It has also contacted letting agents to ask for the details of the all their landlord customers.
This use of big data enables HMRC to focus its attentions on specific target groups and cross reference information from several different sources.
It is using the information it has gathered to write to landlords if it thinks there is a discrepancy between the amount of tax declared on their self-assessment tax return and how much it thinks should be owed.
HMRC believes that tens of thousands of landlords are paying very little or no tax on their rental income and capital gains made from second properties. HMRC estimates that landlords could be underpaying up to £500 million in UK tax every year. There are currently fewer than 500,000 taxpayers registered with HMRC as owning second properties but HMRC estimates that the actual number of landlords is much higher, about 1.5 million, and wants to close the gap.
If you have received a letter from HMRC or need advice regarding your tax, we would strongly recommend speaking to one of our expert tax advisors now.