According to the findings, UK buy-to-let landlords who have admitted to evading tax on their rental income underpaid an average of £4,480 in tax last year, up 72% from an average of £2,610 underpaid the year before with the firm suggesting that landlords who have evaded larger amounts of tax are now beginning to come forward as HMRC applies more pressure on the sector.
HMRC has been running a “Let Property Campaign” since 2013 which allows buy-to-let landlords and the owners of holiday homes to voluntarily disclose unpaid tax. At the time of the launch, HMRC estimated that 1.5million landlords were underpaying their tax or not paying it at all.
HMRC has been mailing out thousands of warning letters to potential suspects encouraging them to come forward. If they do not come forward, the landlords risk facing even higher penalties when they are caught.
UHY Hacker Young explains that HMRC has become increasingly effective at identifying those suspected of underpaying tax by cross-referencing information from lettings agents, holiday lettings websites, bank accounts and tax returns.
Airbnb, for example, has provided HMRC with details of its 225,000 UK hosts.
In the most serious cases of tax evasion, HMRC can assess up to 20 years of a landlord’s tax affairs and can also instigate a criminal investigation. Previous examples where tax evasion on rental income has led to a criminal prosecution include:
A landlord evaded £59,000 in tax on his 26 rental properties over a 5-year period and was consequently jailed for two years
A landlord had to repay £281,000 which he evaded on his 17 properties, plus an additional fine of £200,000 and was sentenced to two years in prison
Over the last five years, the campaign has collected a total of £142m in underpaid tax as a result of disclosures from 48,000 UK landlords.
Disclosures made under the campaign can be complex and it is often recommended this is done through an adviser. If HMRC believes the information disclosed is incorrect, this will give them a reason to assess the individual’s broader tax affairs in depth.
Clive Gawthorpe, Partner at UHY Hacker Young, concludes: “When landlords who are hiding income get a warning letter from HMRC, they realise that HMRC is closing in on them and they can no longer hide.”
“HMRC is giving landlords a chance to confess and in return, it will lessen the penalties imposed. This will be the most favourable outcome for landlords and any with undisclosed income ought to take that opportunity before it’s too late.”
“If a landlord decides to come forward under the campaign, it’s better to do it with professional advice, particularly if their tax affairs are complex. This will be key in helping avoid any mistakes and the possibility of further investigations by HMRC."
