Newham Council in east London has been identified as an area that landlords are failing to declare income in.
It’s thought that up to 13,000 landlords aren’t declaring their rental income which means that they aren’t paying tax on it. Estimates put the tax loss for HMRC up to around £200 million a year.
Newham Council was the first borough to introduce a compulsory licensing scheme for landlords back in 2013. This meant that they were able to provide names and property addresses for landlords to HMRC.
With this information, they were able to tell HMRC that 13,000 landlords of the 27,000 registered there had not registered for self-assessment. Typically self-assessment is required if the property owner receives more than £2,500 a year in rental income.
Sir Robin Wales, mayor of Newham wrote to Chancellor Philip Hammond and said: “It is our understanding that, to date, up to 13,000 Newham landlords are of interest to HMRC, where there are discrepancies between declared income and our records, with potentially significant financial implication for the exchequer.”
Licensing schemes
Newham is trying to get its licensing scheme renewed. In 2015, there was a clampdown by the government which dismissed licensing as “unnecessary additional costs” for landlords. However, for the council, it’s one way to tackle tax evasion.
“Our core grant funding has halved since 2010-11, that’s less money for our schools, less money for social care, and less money for housing. I urge you to assess the additional benefits of Newham’s licensing scheme in assisting the exchequer to address tax evasion by landlords,” Wales said.
Before the licensing scheme, it was believed that there were 30,000 private properties rented out by about 5,000 landlords. After the licensing, it was revealed that 50,000 properties were being rented out by 27,000 landlords.
Following on from Newham’s example, Liverpool, Barking, Dagenham and Waltham Forest have introduced compulsory licensing schemes. Others are hoping to have it too but are facing opposition from the government. Redbridge, a borough close to Newham has already had their licensing application rejected.
The downside to compulsory licensing
While 90% of residents in Newham are in favour of the licensing getting renewed, others aren’t as keen on the concept. Newham’s fee for new landlords would be £150 but this is expected to rise to £400. Liverpool currently charges landlords £400 for their first property and £350 for each additional property.
Brandon Lewis, housing minister issued a warning in 2015 calling for an end to blanket licensing for councils. “The blanket licensing approach adopted by some local authorities has major drawbacks. This is because it impacts on all landlords and places additional burdens on reputable landlords who are already fully compliant with their obligations, thereby creating additional unnecessary costs for reputable landlords which are generally passed on to tenants through higher rents.
“The vast majority of landlords provide a good service and the government does not believe it is right to impose unnecessary additional costs on them or their tenants. Such an approach is disproportionate and unfairly penalises good landlords.”
Let Property Campaign
HMRC said in a statement: “We are working with the London Borough of Newham as part of the Let Property Campaign. This work has generated £115m in additional and previously unpaid tax and interest.”
The Let Property Campaign was launched in 2014 by HMRC as a way to combat landlords not declaring their income. It was believed at the time that 1m buy-to-let landlords were avoiding around £550m in tax.
Newham has started off 1,135 prosecutions, 70% being in London. As a result of their findings, 28 landlords have been banned and they’ve served 2,170 notices to improve properties. So far they have recovered £2.6m in council tax.
Do you agree with compulsory licensing or is it unfair to most landlords? How else do you think HMRC should tackle landlord tax evasion? Let us know your thoughts.