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HMRC declares war on tax-dodging landlords

Northern landlords, Scottish scrap dealers and self-employed workers in the South East are all coming under scrutiny from the taxman.

The taxman has announced it is to crack down on landlords skipping out on their taxpaying responsibilities, with new taskforces launched to identify offenders.

HM Revenue & Customs has launched a number of separate specialist taskforces this year, each targeting specific areas where the taxman believes it is missing out on revenue. Indeed, just last week a team was launched to investigate wealthy overseas property owners to ensure it isn’t missing out on any tax revenue.

And now landlords have come under the taxman’s gaze.

Tax-dodging Northern landlords

However, it’s not all landlords that HMRC reckons have been on the fiddle.

No, the new taskforce will be specifically looking at landlords in the North West of England and North Wales, and only those or own or rent out more than three properties. Quite why it's landlords in the North West and North Wales that are most likely to be underpaying their tax is unclear. But it's reassuring to see.

Paying too much tax

After all, landlords do enjoy a number of tax benefits not open to the rest of us, even though research suggests they don’t take advantage of all of them.

Earlier this year, buy-to-let lender Paragon surveyed landlords on which expenses they deduct from their income tax. And while the majority knew they could include things like mortgage interest (87% of respondents), insurance (92%) and repairs and maintenance (95%), there were a number of other areas where landlords were footing the bill unnecessarily.

For example, just 41% knew they could claim back their outlay on energy efficiency improvements, 45% knew they could claim for advertising the properties, and 49% knew they could claim back travel costs associated with visiting the property.

For more on the tax benefits of being a landlord, check out Landlords are paying too much tax. You should also check out the excellent landlord tax guide (PDF) from Paragon.

Tax hikes for landlords

Despite these financial incentives for landlords, their tax situation may still be somewhat taxing.

After all, not only do some landlords now have the taxman breathing down their necks, but also potential new taxes to take into account.

As we highlighted last month, the government wants to scrap tax breaks for second home owners, in order to bring down council tax levels for everyone. And it’s not just the wealthy that will suffer as a result of this change, but landlords too.

For more on the damage this tax revamp could do to landlords’ pockets, read Landlords could be hit by covert tax hikes.

Not just landlords

It’s not just landlords that HMRC is targeting with this new batch of taskforces. In addition, scrap metal dealers in Scotland will come under scrutiny, as the taxman has identified a high risk of tax evasion within the trade.

On top of that, taskforces will look into self-employed construction traders (again in the North West or North Wales) who suppress sales or over-claim expenses, Scottish fast food outlets, and the underpayment of corporation tax, income tax (via self-assessment), PAYE and VAT in the South East.

I like this targeted approach, identifying areas where there is clear evidence that tax evasion has taken place, tracking down the guilty parties and (hopefully) extracting the money they owe.

The taxman is planning to have nine taskforces in action across 2011/12, with more teams launched in 2012/13. It hopes that this approach will help it to claw back around £7 billion each year by 2014/15. The government put £900 million aside during the spending review to put towards tackling tax evasion, avoidance and fraud.

What happens if you’re caught

The taxman is certainly talking tough when it comes to tax evasion, stating that these taskforces will “come down hard and fast” on those people it finds to have avoided paying the correct amount of tax.

Should you be identified as a guilty party, you’ll get whacked with a sizeable fine, and possibly even face prosecution. Clearly, the authorities mean business on this one.

More: Wine drinkers set to pay more tax | VAT hits the poor hardest

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  • 12 November 2011

    All this in an evenly balanced world is one thing. if only !!! But from my experience now on the otherside of a 8 year tax investigation where it appears my name was simply pulled from a tax office lucky dip bag to be investigated. I endured 8 years of a lets dig and see from these government shysters they call tax inspectors. A few years in and it was clear the government shysters were simply fishing in the dark. They had nothing other than their own jealous spite that was hidden behind rigged rules giving them at all times, the upper hand to demand, smerk and bully. They simply made it up as they went along. After several years, one of the tax shyster knowing he was getting nowhere even offered to shut the whole thing down "if" I would admit to fiddling something and then, pay a 5 figure sum in settlement. He also told me if I did not accept his offer, I would face many more years of hassament until, I did admit what they were trying to pin on me because he said, they had all the time in the world and would unless, I gave in, keep going, and keep running up accountants bills asking loads of pointless questions. I refused his off the record offer, and five years further down the line the shysters had to conceed and admit that in fact, in contrast to my not paying enough in tax, I had in fact, been paying substantially more in tax than I ever needed. This mainly was due to failings by my accountants who had failed to claim proper allowances. This resulted in, after eight year of hell, a huge tax refund. The bottom line the inland revenue never had any reason other than their own jealous spite to investigate me. The revenue wasted tens of thousand of pounds in man hours digging for something that wasn't their. They found nothing, so they simply created something instead to pin on me. At the end of it all, all they offered me was £150 in compensation for 8 years of hassle and hell. The reason they only gave me £150 they say is because it is public money. Odd thing is, when it comes to MP's on the fiddle, first class flights for govenment staff and the royals or, a whole host of others milking the system at every corner. Then there never seems to be any shortage of public money to go round. To date the revenue, are even still trying to duck out of paying my accountants bills that they ran up over the 8 years. What the revenue should now do, is hold the tax shysters to account and if, as they say, they don't want to use public money. The tax shysters themselves or their managers should be made accountable for their actions and then made to pay the bills they pointlessly ran up from their own pockets. So before this bunch of government shysters ( the revenue ) start harrsing private landlords the government first want to get some tight controls on this bunch of target chasers because from my direct experience, what they cannot find honestly they make up, then hide behind rigged rules to enforce what they make up.

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  • 12 November 2011

    I wonder when HMRC will tax benefit claimants who keep Housing Benefit. Keeping Housing Benefit is currently an income that doesn't attract taxation also allowing the claimant Unemployment Benefit. If HMRC where to tax kept housing benefit, and then the Government refused to pay claimants who had an income, then Landlords might actually get paid. I unfortunately will not take benefit claimants as the costs have been so high. I've actually left a property empty than take a benefit claimant, which I feel is wrong for all. There are good Benefit Claimants but one still ends up subsidising good ones. The Government also needs to create Legislation to make Tenants responsible and fine them, just like bad landlords are fined. The Deposit Protection Service makes it Law to fine the Landlord 3 x deposit if not protected, why not fine Tenants 3 x rent if they do not perform their duties? Although I have great tenants now it's been a learning process and I honestly wished I hadn't made the effort of self employment.

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  • 12 November 2011

    The only landlords that HMRC does not know about are those not using letting agencies - but even then, they can tell the houses are being rented. There is probably a lot more to gain looking at what the top 1000 most powerful people in the country do tax-wise - Top politicians and businessman. There must be millions on tax avoidance at that level !

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