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Landlords Face Closer Scrutiny From HMRC

Landlords Face Closer Scrutiny From HMRC

HMRC Want Landlords
To Pay Up

Her Majesties Revenue and Customs (HMRC) are determined to hit private rental sector (PRS) landlords for as much tax as possible.

Over the past few months, HMRC inspectors have been closely scrutinising PRS landlord activity, focusing on any money generated by sales of buy-to-let properties that were purchased by property investors.

HMRC have created dedicated task forces in the Yorkshire and Humber region and in the South East of England to ensure property investors are not evading tax obligations.

HMRC have also been publicising a property sales campaign to try and round up property investors who have yet to declare income from the sale of rental properties, so if you are a property investor who has recently sold a rental property, (that has never been your main residence), you better hurry up and declare it to HMRC before 6th September 2013.

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Buy to let landlords who own rental properties in the North East, Yorkshire, East Anglia and London, should be aware that they will be among businesses targeted by six new HM Revenue & Customs (HMRC) taskforces.

The Association of Residential Letting Agents (ARLA) report that HMRC are likely to focus on private rented sector (PRS) landlords providing temporary accommodation and landlords of Houses of Multiple Occupation (HMO’s) although specific details on the scope of the taskforce have yet to be announced.

It is expected that the taskforce will initially focus on private sector landlords in specific areas, but if the taskforces are successful, their remit could be easily extended to cover the whole of the UK.

In 2011/12, HMRC launched 12 taskforces with up to 30 more set to follow in 2012/13.

The taskforces are a result of the Government’s £917m spending review investment to tackle tax evasion, avoidance and fraud which aims to raise an additional £7bn each year by 2014/15

HMRC are using specialist teams and sophisticated techniques to gather information from across Government departments, and other sources including press and internet advertisements, universities and colleges, to identify individuals who are not paying sufficient tax and the chances of going undetected are increasingly remote.

It is not just unpaid income tax that HMRC are investigating, landlords providing temporary accommodation, perhaps to seasonal agricultural labourers, students or even homeless people, may find that a sizeable VAT liability is incurred.

Some landlords may not realise that VAT is chargeable on temporary accommodation as HMRC tend to treat 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.

The HMRC taskforces undertake intensive bursts of activity in specific high risk trade sectors and locations in the UK.

Exchequer Secretary, David Gauke, said: “HMRC is on target to collect more than £50 Million (GBP) as a result of the taskforces launched in 2011/12. We have made it clear that we will not tolerate tax evasion. Everyone needs to pay the taxes they owe in full. We are determined to crack down on the minority who choose to break the rules. It is not fair that at a time when most hard-working people are paying the right tax, others are trying to get out of paying what they should.”

HMRC’s Director of General Enforcement and Compliance, Mike Eland, said: “These six new taskforces will bring together specialists from across HMRC to tackle tax dodgers. If you have paid all your taxes you have nothing to worry about. But deliberately evading tax you should be paying can land you with not only a heavy fine but possibly a criminal prosecution as well”.

Her Majesties Customs & Revenue (HMRC) is set to expand spot-checks to include landlords and small business owners across the UK in 2012.

UK Landlords and small business owners need to be prepared for an unwelcome knock on the door and a potential investigation into their business activities, by the TAXMAN!

HMRC is planning to investigate thousands more landlords and small businesses in 2012, and is expanding its investigations on several fronts.

The Business Records Check regime, trialled in selected areas of the UK in 2011 will expand its remit to the whole of the UK.

HMRC initially aimed to target 50,000 UK small businesses but have since lowered their expectations to target around 20,000 small businesses and landlords in 2012.

HMRC planned to take on around 90 extra staff in order to help it conduct its investigations, suggesting that it considers the checks to be an important priority.

The purpose of the unannounced visits is to ensure that businesses have kept sufficient records, and that those records back up their tax returns, and that could mean potential trouble for a large number of small enterprises.

Landlords and small business owners that are found to have kept insufficient or inaccurate records could be fined – heavily!

UK landlords have often mused over their immunity to such investigations, until the end of 2011, when the Revenue announced the establishment of a new task force specifically charged with investigating landlords in the North East of England and North Wales, and these investigations will now be extended across the country as part of the Revenue’s continued drive to clamp down on tax evasion, leaving UK landlords with no doubt over their position.

UK landlords are legally obliged to keep comprehensive records detailing rental income and related expenditure. Landlords must keep these for at least six years following the end of the tax year to which they relate. Accurate record-keeping is the most important way in which landlords can protect themselves.

UK landlords should ensure the accuracy of their tax returns. HMRC has dished out fines for relatively minor infractions, and it is therefore important that a landlords tax return is fully supported by detailed records.

Property Valuations In UK on the Increase

UK Residential Property Values Increase Across the UK

According to Nationwide 9 out of 13 regions in the UK recorded residential property price rises in 2011, with London the best-performing region (+5.4%) and Northern Ireland the worst-performing region (-8.9%).

Property prices in Scotland are down 0.8% on the year, having remained steady in the final quarter of 2011, in Wales prices ended 2011 up 1.5% despite having lost 0.9% in the final three months.

For the UK as a whole, the typical value of home stood at £164,785 in December, following a 0.3% increase during Q4 which helped produce an annual price rise of 1.1%.

However, at 5.2, the average house price to earnings ratio remains above the long-term average of around four, although down from a peak of 6.4 in 2007.

Due to continued property price falls, Northern Ireland is now the cheapest UK region in terms of average prices, and also the most affordable relative to average earnings.

The North remains the most affordable English region, while annual price growth of 5.4% has consolidated London’s position as the least affordable region, with a house price to earnings ratio of 7.4.

In 2012 the market is likely to be dominated by fears over rising unemployment, the squeeze on household incomes and the Eurozone finance crisis.

Forecasts for 2012 are for property values to remain stagnant at best.

Shortage of suitable property supply should continue to underpin the market, although Halifax recently reported that there were only 187,000 First-Time Buyers (FTB’s) in 2011 – the lowest annual total since the lenders’ records began in 1974.

New data released by the UK’s Council of Mortgage Lenders (CML) shows that Monthly mortgage payments on residential properties in October 2011 were the most affordable for nearly eight years, but due to increased regulation, lending numbers dropped.

Although First-Time Buyers’ (FTB) deposit requirements have remained stable in recent months at an average of 20%, their monthly interest payments have continued to fall and now typically consume 12.3% of income, the lowest level since January 2004.

Affordability for movers also improved, with this group paying an average of 9.2% of income on mortgage interest, the lowest level since monthly records began in 2002. However, despite the improved affordability of monthly mortgage payments, lending activity has slowed.

In October 2011, 44,500 loans for house purchase were advanced, down from 48,200 in September and from 46,900 in October 2010.

Of the 44,500 loans, 16,400 went to first-time buyers, down from 18,200 in September 2011, down 1% on October last year.

Mortgage affordability is one thing, but the lack of deposits remains a major factor in holding back the housing market, especially for first-time buyers.

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