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.