Many landlords felt that tenancy deposit protection schemes were unnecessary; that most were good landlords and this landed them with even greater bureaucracy; some landlords chose to forego deposits altogether, to avoid involvement with the schemes. This seemed a little extreme, a deposit after all being the one small safeguard possible if a tenant leaves rent arrears or damages, but a recent article seems to indicate that those who did this were (perhaps accidentally) more sensible than the thousands that continue to take deposits. The suspicion and ill-feeling about the schemes pales into insignificance, when you consider that the information the schemes obtained from compliant landlords is being shared with the HMRC.
Every landlord should willingly pay the tax he is required to, avoidance of it is a criminal offence with harsh penalties, but it is the underhand way that this has been done that provokes my ire. Landlords will be told by various officials during the course of running their businesses, that certain matters cannot be discussed because of ‘data protection’ with a knowing nod. Yet the information landlords innocently give will be passed to HMRC. No limitations on data protection there then.
HMRC software, CONNECT, is a very sophisticated system and has led to thousands of landlords receiving letters, from the Let Property Campaign, which HMRC has been running since September 2013; the letters state that data they have received, compared with tax returns completed by the landlord, has indicated he may not have disclosed all income generated from the properties he lets. They are given 28 days to contact HMRC. There is no argument with these letters, they have the evidence and there is a threat implied. Any landlord receiving such a letter should immediately contact their Accountant or Tax Advisor.
On the other hand, HMRC are trying to work with landlords a little more gently. When their campaign started, it was with the intention of alerting landlords that they need to pay tax on all rental income; the aim was to encourage landlords to voluntarily disclose what previously had been undisclosed rental income. This has been so successful, it is being lauded as one of their most successful campaigns ever! The result of the campaign is that over £50 million has been brought in and over 10,000 landlords have disclosed unpaid tax on income. Greater publicity will allow this campaign to grow and more landlords come forward.
The positive results are not all down to landlords prepared to work with the systems in place however; some credit must go to HMRC who have written to over 80,000 landlords and had more than 50,000 customers use the on-line Educational Services. They ran a Question and Answer session on Twitter on 20th October, to help educate landlords. Contact HMRC to see if they will be running more of these sessions. The more who ask, the more likelihood that they will repeat them.
Collaboration and co-operation always work better with landlords than the confrontational style of these letters; whilst HMRC have shown their desire to help landlords to stay on the ‘right’ side and get their tax affairs in order, it seems sad that despite the success of the campaign, they have had to resort to using what should have been confidential information to impose leverage on landlords. As for the tenancy deposit protection schemes – this adds just another reason for the landlords’ lack of trust.
For advice on buy to let issues – Ask Sharon