Landlords warned to get tax affairs sorted

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Private landlords are being warned to get their tax affairs in order to avoid being caught in a crackdown by tax inspectors.

Phil Bates, Principal at Cheshire accountant Phillip Bates & Co, says the potential penalties are severe unless landlords ensure they have registered with HM Revenue & Customs (HMRC).

Bates, who has over 100 landlords as clients, says HMRC has stepped up its campaign to bring to book any landlords who they believe are avoiding paying tax due on rental properties.

Figures for 2013-14 showed that tax inspectors obtained more than £130 million as a result of enquiries into underpayments of capital gains tax.

Fewer than 500,000 taxpayers are registered with HMRC as owning second properties. HMRC estimates that the true number of landlords is much higher, at around 1.5 million.

Since January, a number of landlords have contacted Phillip Bates & Co having received letters from the Revenue over unpaid tax.

Bates said: “A number of new clients are private landlords who have fallen foul of HMRC. A landlord must pay tax on profit just like any other business but only after costs – known as allowable expenses – have been deducted.

“This is where there is sometimes uncertainty. For example, allowable expenses do include reasonable repairs and maintenance to keep a property in good order, but they do not cover renovation costs incurred prior to letting or extensions, although these can usually be claimed for capital gains tax purposes when the property is sold.

“The potential penalties for landlords failing to pay their tax are severe – as much as 35% of the potential lost revenue is standard, where HMRC makes initial contact with landlords.

“The Revenue is able to gather information on private landlords from various sources. The way to avoid a nasty investigation is to register as soon as possible and ensure your tax affairs are in order.

“The penalties are likely to be reduced or avoided entirely if a landlord advises HMRC first rather than waiting for the Revenue to catch up with them.”

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