New powers for HMRC clampdowns on landlords

Permalink: New powers for HMRC clampdowns on landlords
by Gill Montia

HM Revenue & Customs’ (HMRC) clampdown on amateur landlords who have not been paying tax on rent is being reinforced by proposals included in the Finance Bill that went before the House of Commons last week.

The proposed new measures include the right for tax inspectors to arrive unannounced at the homes of those who own buy-to-let property and to issues fines of up to 100% of any tax due on income.

The changes, which are due to come into force from 1 April 2009, will remove certain discretionary powers held by HMRC and tax experts believe the new regime will be harsher than the existing one.

HMRC will be given the power to levy a range of penalties. For example, a “failure to take reasonable care” in completing a tax return would attract a penalty of up to 30% of the extra tax due; a “deliberate understatement” would attract a penalty of up to 70%; and “deliberate understatement with concealment” would attract a penalty of up to 100%.

Last month, HMRC launched a campaign on buy-to-let investors because it suspects that large numbers of landlords are not declaring income.

Some may not fully understand tax law; many landlords are thought to be declaring their full mortgage payments as an expense, whereas they should extract all capital repayments and claim only the interest element as an expense.

The new regime will apparently encourage taxpayers to admit to understatements or errors as soon as possible.