It was announced in May this year that UK sectors in which there is “evidence of high risk of tax evasion” will be targeted by 30 specialist HMRC taskforces to be set up over 2012/13.
Among the sectors targeted were the private rental markets in London and East Anglia and in areas of Yorkshire, the East Midlands and the North East. The South East private rental market has now also been added to the list of potentially higher risk cases.
HM Revenue and Customs (HMRC) recently estimated that £550 million tax per year is evaded by buy to let landlords who do not disclose, or fully disclose, their rental income. This figure amounts to almost a quarter of tax due on rental income across the whole sector.
When it was announced earlier this year that certain buy to let markets would be among those sectors investigated by the HMRC taskforces, accountancy and business advisory firm James Cowper advised that rental income was not the only contention.
Head of VAT Services at the company, Ruth Cowper, warned:
“Many landlords may not realise that VAT is chargeable on temporary accommodation as HMRC treats it in the same way as hotel or guest house accommodation. Landlords may not be registered for VAT when they should be and so could face a back-dated VAT claim.”
We advise that anyone who thinks that they may have paid insufficient tax consult with their accountant or a financial adviser. For further advice on buy to let tax law, read our expert guide to tax.
The importance of planning
It may be that defaults on tax payment are caused by the ill-preparedness of some investors.
In recent times, many have turned to buy to let to invest for their retirement, attracted by growing demand, rising rents and the promise to outperform pension funds and regular savings accounts.
Residential Landlords Association (RLA) chairman Alan Ward recently warned, however:
“...many people coming in (to the private rental sector) are not prepared for the costs or for the legalities and responsibilities of owning a buy to let property.”
Prospective landlords are strongly urged to thoroughly research the sector, and the area in which they are buying, before making a buy to let investment. Please see our expert guide to the buy to let investment for more information.