David Whittaker, managing director, Mortgages for Business gives his opinion.
“When one watches some tired hack on the platform mechanically repeating the familiar phrases - bestial atrocities, iron heel, blood-stained tyranny, free peoples of the world, stand shoulder to shoulder - one often has a curious feeling that one is not watching a live human being but some kind of dummy, the appropriate noises are coming out of his larynx, but his brain is not involved.” So said George Orwell in 1946 – and in the run up to the current election we are constantly hearing about “hard working families”, “democratic deficit”, “deficit reduction”, “NHS funding crisis” ... and “tax avoidance and evasion”.
If there is one thing that all of the political parties can agree upon (at least in public), it is that the Government needs to raise several billion through clamping down on (legitimate) tax avoidance and (illegal) tax evasion. Nearly a year ago in BTL Watch, I wrote about why brokers should take an interest in their client landlords’ tax affairs and I highlighted how inattention to a client’s tax affairs could:
• Cause you to lose business income
• Expose you to committing a criminal offence
• Cost the Exchequer revenue – and that this ultimately costs us all as taxpayers
Whilst I haven’t changed my stance, it would seem that HM Revenue & Customs and the Government is becoming much more active in chasing landlords who deliberately, or otherwise, avoid paying tax on rental income or capital gains.
With the imperative to meet the targets that will be set in the new Parliament, this clamp down is only going to become more rigorous – particularly as HMRC reported back in January that it had collected record amounts of Capital Gains Tax through probing into (mostly buy to let) property transactions.
I suspect that the success of this campaign may well mean that these tax investigations will be exempt from any Government departmental budget cuts for the foreseeable future! Previously, HMRC would check the Land Registry and the electoral role to track down landlords but now information is collected from a much wider range of sources including letting agents and even social media.
After all it is not difficult for HMRC to search records of sales of properties (at Land Registry) and then check on anybody who has sold multiple properties to ensure that they have submitted appropriate Capital Gains Tax and Income Tax returns. I suspect that many an “accidental landlord” could be falling foul of at least one of these requirements – as well as many other (full time) landlords who have been told by “a mate down at the pub” (or even his employer’s accountant) that they don’t need to do so.
As brokers you do not have the option of “taking a view” on such transgressions. At the very least you should ensure that the client has disclosed his affairs fully to HMRC – and if the client fails to do so then you should consider submitting a Suspicious Activity Report to the National Crime Agency as deliberate tax evasion is fraud.
And if you fail to report the client then you are exposing yourself to:
• On summary conviction, a fine of up to £5,000 and/or six months imprisonment
• On conviction on indictment, the maximum term of imprisonment rises to five years
• Loss of future livelihood as such a conviction would make you unemployable in the finance industry
So what do you need to look out for? Well here are a few suggestions:
• Client shows you a schedule of properties worth £6 million and with mortgages amounting to £2m – but the tax return shows a profit of just £15,000
• Client has two high value properties with modest mortgages and is only prepared to provide evidence of rental income with copy of ASTs and bank statements to show rent arriving at his bank account
• Client sold a property that he has owned for several years in 2013/14 – and yet the tax return does not mention any Capital Gains
• An “accidental landlord” only has earned income on his tax returns
I am not suggesting that the submission of a SAR should be your immediate response since there may be a legitimate explanation.
Also, if the client agrees to engage properly with HMRC then the onus is on HMRC to start the criminal process if the full facts so require.
However, I am suggesting that, at the very least, brokers should take the time to ensure that they are up to speed with the regulations and their obligations.
At MFB quarterly training programmes which include this subject matter are compulsory for all staff – including me. Not only do I want us and our clients to stay on the right side of the law, I see it as a key part of our continuing professional development.
Enough of this – now let me return to reading all of the party political manifestos... Yawn!
21st April 2015