£1.8 billion is collected in tax on rental income, meaning that 23% could be missing according to H M Revenue & Customs (HMRC) estimates. The figures were revealed by investigative organisation Exaro. The claims come at a time when major companies such as Amazon, Google and Starbucks are facing accusations of "immoral" tax evasion, facing questions from a public accounts select committee.
Earlier this year, HMRC announced a special task force aimed at investigating and recovering £17m in unpaid taxes by private landlords. But these figures suggest that this amount is just the tip of the iceberg. There are over 1.9 million private landlords in the UK according to HMRC figures, but it is unclear how many may be evading taxes.
HMRC also sees the £550 million figure as a "lower limit" because incomplete third-party data gives only a partial picture. An HMRC spokesman said: "Lettings are a key area where we are losing money. This is an area where people try to cheat us."
"Clearly, rental income is an area where HMRC needs to pay more attention," said John Whiting, director of tax policy at the Chartered Institute of Taxation. "On this scale, it is serious tax evasion."
Records at the Land Registry allow tax inspectors to target potential evasion by identifying individuals who own more than one property. But undeclared rental income can be hard to track down in some cases, when done informally such as a couple moving in together and letting out one of their flats to friends or relatives. Providing temporary accommodation to seasonal workers, students or homeless people can all incur a VAT liability.
Private landlords include people who have lodgers renting with them, holiday lettings and "accidental landlords" - those who turn to renting out their property when they find themselves unable to sell in the slow property market.
Ruth Corkin, Head of VAT Services at accountants and business advisers James Cowper, said: "Many landlords may not realise that VAT is chargeable on temporary accommodation as HMRC treats it in the same way as hotel or guest house accommodation. Landlords may not be registered for VAT when they should be and so could face a back-dated VAT claim."
James Cowper suggested that landlords who have reason to suspect they may have an outstanding tax liability should speak to their accountant or tax adviser to work out if they have been paying the correct tax. They should seek to resolve the situation as quickly as possible to avoid a large tax bill and penalties.