It has been a tumultuous year for landlords, with several law changes enforced and coming over the next few months that will affect how landlords earn money, along with how landlords or investors figure out their profit and the amount of tax they have to pay.
Knowing that it may become even more difficult for landlords to accurately work out their earnings on rent and the tax they need to pay, Her Majesty's Revenue and Customs (HMRC) wants to draw the attention of landlords to the Let Property Campaign.
The Let Property Campaign was launched by HMRC in 2013. It is a programme to help landlords who have underpaid tax on their rent earnings, by announcing their underpayment voluntarily. The programme is in place to help landlords get up-to-date with their tax arrears without incurring a penalty as harsh as they would if their taxes were audited.
Since the campaign was launched, there have been more than 13,000 disclosures from buy-to-landlords, with the HMRC gathering £50m in unpaid taxes.
Most investors who owed backdated-tax only needed to pay a couple hundred pounds, and most landlords were on the smaller scale, as were amateur landlords, along with people who found themselves becoming accidental landlords.
The main purpose of the Let Property Campaign is to allow buy-to-let landlords to pay back their tax arrears with the best possible terms. After declaring unpaid taxable earnings to the HRMC, a landlord has 90 days to calculate and pay back any monies owed.
A penalty will be incurred, but the severity of this penalty will depend on how forthright a landlord has been, with a full and voluntary disclosure receiving a much smaller penalty compared to the penalty that would be incurred if a landlord is found not to have paid the correct amount of tax during a raised enquiry or compliance check.
There have been increasing concerns that professional landlords are using Airbnb and other short-term property rental services in order to get around paying the full level of tax expected. Current laws allow landlords to legally earn £7,500 on their rental properties before they have to pay tax. However, landlords are using services such as Airbnb to earn more money and get out of paying the correct level of tax, as well as letting their rooms for more than 90 days a year, which is against current property rental regulations.
Of course, there are several circumstances in which a landlord has not purposefully withheld tax, especially if they are inexperienced. However, HMRC wants to stress that whether the inaccuracies were accidental or on purpose, landlords would find themselves in a better position by coming forward voluntarily; not only will the extra charge be less by doing so, it also allows landlords to live in certainty knowing that they won’t unexpectedly be required to pay back-taxes further down the line.
Whether you’re an experienced landlord or you’ve just bought your first buy-to-let property, here at CPS Homes we are an experienced lettings agency and know just how stressful managing buy-to-let properties can be, that’s why we offer several different Property Management Services for landlords in Cardiff. To find out more, get in touch, email us at: firstname.lastname@example.org, or pop into our branch in Roath.