HMRC – Tackling the Hidden Economy

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Tax Compliance

Under an initiative by HMRC to use new technology and artificial intelligence (AI) techniques to “Tackle the Hidden Economy” a recent consultation has identified several areas where there is a need to have an operating licence – HMOs and selective licensing in the private rental sector being one of these – as an option for HMRC to develop tax-registration checks.

It follows a recent revelation that in one London borough alone, up to 50% of landlords operating with a landlord licence had not registered for a self-assessment tax return. The HMRC consultation aims to tackle different areas of the hidden (non-tax paying) economy by making the need to access all licences conditional on tax compliance, known in the HMRC jargon as ‘conditionality’.

Mandatory licensing for HMOs and the selective licensing schemes are obvious areas of a landlord’s operations where the government thinks they would be suitable for conditionality.

The Housing Act 2004 introduced mandatory licensing for private HMO rented properties, enforced by local authorities in England and Wales. In 2015, the Department for Communities and Local Government (DCLG) introduced further grounds for implementing selective licensing schemes for poor property conditions, high levels of migration, high levels of deprivation and high crime, and it is now likely that following an upcoming legal review, mandatory licencing will be introduced for 2-storey HMOs as well.

There are approximately 510,000 HMOs in England and approximately 64,000 of these are currently required to be licensed, with a further 160,000 HMOs with the introduction of 2-storey mandatory licensing.

The government says it “values the private rented sector and wants to see a strong, healthy and vibrant market, which meets housing needs in a professional way”, and this includes ensuring that landlords are reporting and paying the tax they owe.

HMRC is therefore increasing its targeted compliance activity across the private rented sector through taskforce activity. HMRC says it is also encouraging those who have been non-compliant to come forward through activities such as the Let Property Campaign

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