Introduction
The main purpose of this article is to highlight HMRC's pursuit of the landlord.
Newspapers as a Research Source
Primarily, HMRC's main source of landlord information is newspapers.
The local newspaper will showcase planning applications for flat conversions: if the planning application was for a series of flats in one house, they try and ascertain if the landlord was filing a tax return. They would check for a UTR, Unique Taxpayer's Reference, which is a 10 digit number and would then see if the taxpayer was declaring the letting income: if he/she was, they would be entered on the "Not Worth Further Pursuit" database.
Check to See if Income Undeclared and Extent of Underdeclaration
However, if the landlord was Self Assessment registered, and was not declaring the income, the fun starts.
They will send a 116, under TMA 1970 s 18A(3), requesting information from the Distrcit Valuer telling them how much the landlord paid for the property, the date of purchase and from whom the landlord purchased it.
When this is received, they may access Experian to see if any further linked addresses were available: if so, they will send more 116s, and see if more properties were undeclared. More often than not, this yields spectacular results.
If unsuccessful with linked addresses via Experian, they may ask the District Valuer for a Covosearch, a historical list of properties, purchased by the landlord, or in some cases members of the landlord's family, or friends and associates. If the family member was a minor, they will suspect the landlord of attempting to limit his tax liability, and that non-compliance was taking place.
Once the landlord's non-compliance was ascertained the case would be subject to a full enquiry. If, however, the landlord was not on Self Assessment, he would be referred to the Hidden Economy Team, where he would be requested to complete returns with the letting income contained therein.
Other Sources of Information
Apart from the local newspaper another source of locating non-compliant landlords is via a Gangmasters' project, which had offshoots of properties owned in which an incredible amount of tenants were placed in just one room. More often than not, a family member would be acting as a landlord, leaving the Gangmaster to exploit the workforce, although some Gangmasters dabble in non-declaration of rental income.
A further way of locating non-compliant landlords is to establish via the London Information System (LIS) database how much housing benefit was paid to a landlord by a local council for the tenants. Under 18A(3) of the Taxes Management Act, local councils are duty-bound to place this information on the LIS database for HMRC.
Finally, they can also locate, via LIS, rental income submitted to HMRC from letting agents.
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