HMRC – Landlords under tax reporting scrutiny! Consultation.

HMRC Consultation Document “Tackling the Hidden Economy” 8th December 2017. Closing on 2nd March 2018.

The consultation, in regard of the Private Rented Sector (among others) is open to comments from individual Landlords and Businesses.

This consultation proposes ‘conditionality’ measures to tackle the
hidden economy. Essentially this means non-compliance with tax reporting (not submitting a tax return or incorrect tax reporting in the return) by landlords. This would make compliance with certain tax obligations a condition of holding Mandatory and Discretionary Licenses and introduce checks on applicants’ tax-registration status as part the licensing processes (new and retrospective).

The consultation suggests specific sectors which HMRC believes would be suitable for the proposed changes. This includes the Private Rented Sector, specifically landlords of properties subject to HMO Mandatory Licensing and other properties subject to Discretionary Licensing. But see the comments from Rob Crawford below, all landlords could be affected in the future.

It is recommended that Chapter 1 is read in total then in Chapter 2 refer to section 54, this section is specific to the PRS.

It is recommended that all Landlords (either as individuals or their business representative) should read the consultation document and respond as they feel appropriate. Do not rely on others to report any concerns that you may have!

ALL Wessex supports the requirement for all landlords to be compliant with HMRC tax regulations and understands that some means of checking tax reporting compliance is fair.

Rob Crawford Chairperson for ALL Wessex stated that further clarification is required on how HMRC will conduct such a proposal. HMRC need to be open and provide greater insight or reassurance as to where this is all leading! It is important that HMRC detail their full intent, is this a pilot to something bigger?

1. How can a landlord prove compliance with HMRC Tax requirements without divulging unnecessary personal data to Local Authorities?

2. This HMRC requirement may be used as an excuse by Local Authorities to apply Discretionary Licensing to all landlord properties within their area of authority, or

3. Alternatively, this is a stepping stone and catalyst towards a wider “catch all” application where Central Government require all PRS properties and landlords to be licensed.

4. Tax returns will need to be modified to reflect the taxable rental income of individual properties and to ensure compliance with tax regulations, a greater breakdown of acceptable and non-acceptable costs including mortgage interest.

5. A break down to the level stated above in 4, will reveal rental profit for each property and could later be used by Government to cap rent to specific profit margins.

6. Rogue landlords are most likely to be the landlords that readily abuse HMRC Tax Regulations, the majority will escape scrutiny as they will not voluntarily licence their properties and so will remain out of scope.

7. Local Authorities are not sufficiently resourced to execute this process, in terms of scrutiny and identifying rogue landlords.

8. Some landlords (including good/compliant landlords) who are already suffering from PRS change exhaustion, will unfortunately see this as another attack on the PRS and they will decide to vacate the market. This will lead to increased tenant evictions and innocent people becoming homeless.

A copy of the consultation document can be accessed by clicking here.