UK buy-to-let landlords who have admitted to evading tax on their rental income underpaid an average of £4,480 in tax last year, accounting firm UHY Hacker Young has reported.
The figures is 72 per cent up from an average of £2,610 underpaid the year before, its research shows.
‘It is likely that landlords who have evaded larger amounts of tax are now beginning to come forward as HMRC applies more pressure on the sector’, said the firm.
HMRC has been running a Let Property Campaign since 2013 which allows buy-to-let landlords and the owners of holiday homes to disclose unpaid tax voluntarily. At the time of the launch, HMRC estimated that 1.5m landlords were underpaying their tax or not paying it at all.
Over the last five years, the campaign has collected a total of £142m in underpaid tax as a result of disclosures from 48,000 UK landlords.
HMRC has been mailing out thousands of warning letters to potential suspects encouraging them to come forward. If those with unpaid tax do not respond they risk facing even higher penalties when they are caught, said UHY Hacker Young.
‘HMRC has become increasingly effective at identifying those suspected of underpaying tax by cross referencing information from lettings agents, holiday lettings websites, bank accounts and tax returns.
‘In the most serious cases of tax evasion, HMRC can assess up to 20 years of a landlord’s tax affairs and can also instigate a criminal investigation’.
The firm warns that previous examples where tax evasion on rental income has led to criminal prosecutions after which one landlord who had evaded £59,000 in tax on his 26 rental properties was jailed for two years. Another prosecution ended in another landlord having to repay £281,000 which he evaded on his 17 properties. In additional he was fined £200,000 and sentenced to two years in prison
‘When landlords who are hiding income get a warning letter from HMRC, they realise that the tax authorities are closing in on them and they can no longer hide’, said UHY Hacker Young tax partner Clive Gawthorpe.
‘HMRC is giving landlords a chance to confess and in return it will lessen the penalties imposed. This will be the most favourable outcome for landlords and any with undisclosed income ought to take that opportunity before it’s too late’.
