HMRC toughens stance on Landlords

HMRC toughens up its methods for finding Landlords who aren’t declaring their buy-to-let income

40,000 Landlords can expect to see a letter from HMRC landing on their doormats over the next three months. The aim is to close the gap between the 500,000 or so taxpayers who have registered with HMRC as owning a second property and the 1.5m that HMRC believes is the real number.

The letters are encouraging taxpayers to make a voluntary disclosure of the income they’ve received and to pay the subsequent tax that is due. The underlying message to taxpayers is, “We’re on to you. ‘Fess up, or you won’t like us when we’re nasty”

HMRC are stepping up their activities following the commencement of the Let Property Campaign in October 2013, which encouraged Landlords to get their affairs in order.

Land Registry, electoral roll and even Facebook being data-mined for information

It appears that HMRC are becoming far more savvy in their methods for detecting those with undeclared buy-to-let income. Traditional sources of information, such as the Land Registry and the electoral roll are being enhanced with a trawl of social media to find those undeclared holiday cottages. HMRC are also working much more closely with local authorities and the Department of Work and Pensions, identifying those landlords who are receiving benefit payments direct on behalf of tenants.

In the latest move, HMRC has sent out notices to letting agents in which they have asked for details to be provided of everyone on their books.

And it’s not just those who are hiding second incomes

As well as those who haven’t registered a second income from property at all, HMRC is looking very closely at the returns that have already been filed by those with properties. Among the errors HMRC are targeting are those who:

  • Do not realise that only the INTEREST element of a mortgage is allowable as an expense, not the capital repayment of the mortgage,
  • Are not declaring the capital gain on the sale of a buy-to-let property, as taxpayers are mistakenly thinking that there is no tax to pay on properties. (This misunderstanding comes about as there is no capital gains tax on your own home through private residence relief, provided that it is your only home or main residence, and that you’ve only used it as your home, and not for anything else).

Act now

You can make a voluntary disclosure to HMRC if you have undeclared income. HMRC’s policy on ‘errors and omissions’ means that a prompted disclosure attracts less penalties than an unprompted error that they later discover themselves.

If you have a buy-to-let property then get in touch if you’d like to discuss your options.


HMRC: Direct recovery of debts

Budget 2014 – direct recovery announced

In the 2014 Budget, it was announced that HMRC will in future be able to take money directly from the bank accounts of tax debtors that owe more than £1,000 in tax or tax credits in direct recovery of debts. Public consultation on this proposal ended yesterday (29th July 2014).

Everyone has a reasonable expectation that the tax system operates fairly and consistently, and that those who owe money to HMRC should pay what they owe. Those individuals and businesses that do not pay what they owe leave everyone else paying more tax to cover the non-payers, or we accept that there is then less funds available for public spending.

Unprecedented new power

This power would be unprecedented in the UK and to-date there is little details of judicial or other safeguards which would be in place to protect taxpayers, save for a commitment that a minimum of £5,000 would be left in debtors’ accounts.

HMRC have stated that they will only use these new powers, where debtors “have the financial means to pay” and have already been contacted multiple times by HMRC.

It’s difficult to see how HMRC will determine how individuals and companies have the financial means to pay. How will this be determined? How up-to-date are HMRC’s databases? What steps will be put in place to ensure that funds that are not due are not seized?

Any organisation as large as HMRC will occasionally make mistakes and there have been many examples where taxpayers are chased for non-existent debts.

HMRC already has extensive powers to recover tax debts

Like other taxpayers, I share the view the everyone should be paying their fair share in accordance with the law, but HMRC already has significant powers to deal with tax debtors:

It can change your tax code to deal with underpayments, obliging your employer to withhold more of your salary.

It can approach the Magistrates Court to recover debts up to £2,000 and for amounts in excess of this, it can go to the County Court.

It can petition for your company to be wound-up if debts are not paid, and then pursue the directors if appropriate to recover funds owing.

But it has to present its case to a Court.

What hasn’t been made clear in these proposals is why the current methods of recovery aren’t working, although I suspect it is because going down the Courts route, is slow and expensive.

Opposition grows

The professional accountancy bodies have raised concerns.

The Institute of Chartered Accountants in England & Wales has suggested that is necessary to “go back a step, to re-think the policy and consult upon the strategies by which HMRC can tackle those who willfully refuse to pay.”

Other potential issues have been raised concerning where HMRC stands in the pecking order of creditors. Let’s assume a business owes its Corporation tax of £7,000 from last year and at the time of recovery, the business has £25,000 in its bank account. Is it reasonable for HMRC to recover its debt? Well sounds reasonable – but let’s say it does and then the company has insufficient funds to pay its employees or its suppliers at the end of the month?

HMRC hasn’t been a preferential creditor (meaning it is paid its money before everyone else) for VAT or PAYE debts since 2003. This proposal appears to once again introduce this status via the back door.


EU Consumer Rights Directive

Last month, the new EU Consumer Rights Directive passed into law across the European Union. Strengthening consumer rights in a number of areas, this new directive has implications for companies and businesses offering products and services via the internet.

The key changes impacting on business are:

  • Traders will not be allowed to charge more for credit card payments than it costs them to provide such a payment option.
  • The period for consumers to pull out of any distance purchase (e.g. something bought online) or off-premise purchase (e.g. when a seller visits the consumer’s home) is extended to 14 days. These 14 days start from the day the consumer receives the goods.
  • Significantly – if a business has not informed a customer of their rights to cancel within 14 days clearly at the time of purchase, then the period at which a refund can be applied for is extended to ONE YEAR.
  • Any refund arising owing to the above, must be processed and issued to the consumer within 14 days, down from the previous 30 day period.
  • The right to cancel is also extended to online auctions, such as eBay, if the goods are purchased from professional sellers.
  • If retailers want the consumer to bear the cost of returning the goods then it must clearly inform the consumer of this in advance and may need to provide an estimate in advance.
  • There is an exemption for small businesses and craftsmen, in that will be no right to pull out of a contract for urgent repairs and maintenance jobs

What to do as a business?

These changes represent a shift in the balance between traders and consumers. For businesses selling online, now is the time to check that your terms and conditions and your general policies are compliant with the new rules, ensuring that the consumer is presented with the right information at the right time, so that your business is not exposed to future claims or a longer cooling-off period.