New Income Tax penalty system to go live in 2023

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From 2023 landlords in the UK with an annual income over £10,000 will have to file their tax returns via HMRC’s new Making Tax Digital (MTD) initiative.

Through MTD, landlords will not only submit one annual tax return, but also quarterly submissions of income and expenditure, to give a real time snapshot of their tax position throughout the year.

(Find out more about what’s affecting UK landlords in the Tax World by reading our Ultimate Guide to Landlord Tax Returns!)

And with a change of process also comes a change in the penalty system. HMRC is bringing in a new points-based penalty system to better align with MTD.

According to HMRC the aim of the new penalty system is to be more supportive of those with genuine reasons behind mistakes or late filing, while still fining those who are consistently late.

How has the penalty system changed?

Some could argue that rather than being simpler, it is more complicated. The system measures fines by length of time since late submission, with the penalties accruing once the clock starts ticking.

The new system works in a similar way to the UK driving licence. You receive points on your record if you have a late submission – and once you pass a certain point “threshold” then you receive a penalty.

Here’s how it works

When a taxpayer misses a submission deadline they incur a point – these points build up to penalty thresholds, with each submission obligation (i.e. quarterly or annually) having a different threshold. Once this point threshold is reached, then a fixed penalty amount of £200 will be issued for every missed submission.

The Penalty thresholds are as follows;

If the penalty threshold isn’t passed, then the points will be cleared after two years.

But if the points threshold is passed, then all the points gained will be wiped only AFTER they have met a period of compliance as set by HMRC (Annual submissions 24 months, Quarterly submissions 12 months) AND submitted all the submissions due from the previous two years.

For late payment, penalties are issued by length of time passed from the due date – however HMRC have said that they will take a ‘lighter’ approach for the first year of implementation, and a way of easing taxpayers into the system.

The basic structure surrounding penalties for late payment is;

But don’t worry – This will not come into effect until 2023, and HMRC will be releasing more information in the lead up to the new system going live.

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Guest blog: Landlords and tenants face cliff edge as furlough ends

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The end of furlough combined with cuts to vital benefits, will leave private landlords and their tenants on a cliff edge.

Renters are already struggling, with the number in arrears tripling from 3% at the end of 2019 to 9% by the end of 2020.

Now, with the Bank of England warning renters are more likely than any other group to have lost their jobs or been furloughed, we are urging the Government not to turn its back on those facing mounting rent debts through no fault of their own.

The NRLA believes tenants already struggling to cope could be pushed to the brink when furlough draws to a close at the end of September, as Universal Credit payments are cut by £20 a week and housing benefit remains frozen.

Threat to the economy

In a new report we examine what we believe is a failure to address the rent debt crisis building in the private rented sector (PRS) despite the best efforts of landlords and look at the potential solutions.

We know that the majority of tenants want to pay their rent, with 82% of those in debt paying their rent on time and in full prior to the pandemic.

We also know, from our own research, that many of our members have gone above and beyond to help support tenants to remain in their homes during the pandemic.

However, with a high proportion of landlords reliant on rent payments as their own and sometimes only source of income, there is a limit to how long this can continue.

The Government has admitted many landlords “are highly vulnerable to rent arrears”, and we argue landlords cannot be expected simply to continue to absorb these debts.

The figures speak for themselves, with data from MHCLG’s English Private Landlord Survey showing:

• 94% of private landlords rent property out as an individual
• 45% of private landlords rent out just one property
• 44% of private landlords became one to contribute to a pension

And it isn’t just us.

The Bank of England has also flagged the rent debt crisis as a major risk. It said Covid-related arrears could be a threat to the country’s economic recovery and has raised concerns about the impact rent-related debt will have on tenants’ credit scores and their ability to remain in their homes.

What needs to change?

To counter this the NRLA is calling on the Chancellor to develop an interest free, Government guaranteed hardship loan to support the majority of tenants with Covid-related rent debts who are not eligible for benefit support.

This scheme would help these tenants to pay off their rent debts and would follow the introduction of similar schemes in Scotland and Wales.

We are also one of 100 industry organisations to sign a letter calling on the Government to scrap plans to cut Universal Credit payments to avoid potentially devastating consequences for tenants across the country.

Doing nothing is not an option

If ministers continue to ignore the plight of private landlords and tenants the consequences could be both serious and expensive for Government, which will be left footing the bill for rehousing those who can no-longer pay their rent or make up arrears.

The knock-on effect for these tenants is far reaching. They could not only lose their home, but struggle to privately rent a home in future – or get a mortgage – due to the damage to their credit score.

 There is also the immeasurable harm to mental and physical health, and the pressure that places on already stretched health services.

By ending furlough and cutting benefits in quick succession, and without the introduction of a targeted package to tackle Covid-related rent debt, the Government is worsening an already critical situation.

Without transitional support the Chancellor will be turning his back on those renters and landlords that are in such desperate need of his help.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Guest blog: Landlords and tenants face cliff edge as furlough ends | LandlordZONE.

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HELP we have 3 personal BTLs with 3 different lenders and want to incorporate?

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Hi there all, We have three BTLs with three individual mortgage providers which are Virgin Money, Santander and Halifax in personal names obviously section 24 and the tax implications are an issue.

We are looking for some guidance on whether we will have to refinance all the properties to be able to move them into a limited company because they are with different providers or do most mortgage providers allow you to transfer the mortgage/asset into a limited company.

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Repeat rogue landlord to pay £144,000 after ignoring planning rules

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The largest fine issued so far this year to a rogue landlord has been announced by the London Borough of Brent.

It has given landlord Ms Orofena St John, the owner of a property near Wembley Stadium in North London, a penalty of £144,000 after she built several extensions at her 39 Clarendon Gardens property and converted them into seven flats and two bedsits all without planning permission.

Brent council issued enforcement notices four years ago requiring the extensions to be demolished and the premises be converted back to one house.

But St John ignored these orders and in 2019 was taken to court where she was convicted of the breaches. She is now the subject of a Proceeds of Crime Act following a hearing at Harrow Crown Court, which heard that she had previous history in illegally converting properties without planning permission at another nearby property.

Rogue landlord

She has now been ordered to pay £111,582 for the income received from illegally renting the properties to tenants for a profit.
In addition to this, St. John was fined £18,000 in council legal costs and £15,000 for the breach of the notices.

“This penalty sends a clear message that people will not be allowed to get away with ignoring planning laws and renting out properties illegally,” says Brent councillor Shama Tatler, its Lead Member for Regeneration, Property & Planning.

“These laws are in place to protect our residents from being exploited in inferior accommodation and to ensure that Brent’s environment is a great place for everyone to live.”

Read more about Brent.

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‘Replace stamp duty and council tax with flat-rate levy paid by landlords’

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A controversial proposal to scrap council tax, stamp duty and the bedroom tax, and replace them with a flat-rate tax paid by landlords rather than tenants, has been proposed by a leading think tank.

The Institute for Public Policy Research (IPPR) believes a proportional property tax would help to use existing housing stock more efficiently, rebalance property values across the country and increase spending among lower-income families – but it will hit landlords hard.

Pulling Down the Ladder: The case for a proportional property tax says higher taxes levied on more expensive properties in London and the South East could serve to reduce house prices in those areas, while most households would pay lower tax bills.

The IPPR labels the UK’s current system of property taxation unfair and outdated and believes it has not done enough to address the enormous increase in housing wealth that is primarily concentrated in London and the South East and has disproportionately benefitted the old and already wealthy.

Proportional tax

Introducing a proportional property tax paid by property owners not renters – a flat tax of 0.48% on the current value of residential property – would shift responsibility for payment from tenants to landlords, while a higher rate of 0.96% would be charged for second homes, empty homes, and homes owned by non-UK residents.

It explains: “In terms of the incidence of the tax, this analysis assumes that the full benefit of the reduction in council tax will be borne by tenants, and that a portion of the proportional property tax bill will be passed on to tenants – 66% for private renters, and 25% for social renters.

“In reality, in the long run we might expect the incidence of both of these changes to be largely borne by property owners, rather than by tenants.”

Read more about landlord tax.

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Ministers have ‘given up’ on private landlords struggling with rent debt

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The government has ‘given up’ on landlords and tenants struggling with post-Covid rent arrears debt, trade body the National Residential Landlord Association (NRLA) has said.

It is concerned that the sector faces a cliff edge as both rising energy prices, the end of furlough and the government’s decision to cut Universal Credit by £20-a-week impact tenants already struggling after months of Covid, and is demanding that the Chancellor introduces an interest-free hardship loan scheme.

The NRLA says renters are most likely to have lost their jobs or been furloughed during the pandemic and now face mounting rent debts.

To highlight the size of the problem, it has published a new report this morning which also highlights how, by the Government’s own admission, the percentage of private tenants in arrears tripled between 2019/20 to the end of 2020 from three to nine percent, and that many of their landlords are also now ‘highly vulnerable to rent arrears’, as the government itself recently admitted.

Interest-free loan

The NRLA is calling on the Chancellor to develop an interest-free, government-backed guaranteed hardship loan to support the majority of tenants with COVID related rent debts who are not eligible for benefit support.

This scheme would help these tenants to pay off their rent debts and would follow the introduction of similar schemes in Scotland and Wales. More broadly, it is calling on the Government to scrap plans cut Universal Credit payments to avoid potentially devastating consequences for tenants across the country.

Ben Beadle, Chief Executive of the NRLA (pictured), says: “Many tenants and landlords have struggled to cope during the pandemic leaving them exposed to the impact of rent debts which they are unlikely to ever pay off.

“By ending furlough and cutting benefits in quick succession, and without the introduction of a targeted package to tackle COVID related rent debt, the Government is worsening an already critical situation.

“Without transitional support, and as the country gets back to normal, the Chancellor will be turning his back on those renters and landlords in desperate need of help.”

Read more: How rent arrears payment plans work.

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We’ll sell your property portfolios in 7 days for 85% – 95% of the value so you can cash in and retire

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For many landlords, this year has been the year of the “cash in and retire” strategy. And with house prices sky-high, it makes sense. That coupled with the fact that the market won’t be this high again for another 7 years

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A step in the right direction for residential landlords

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A gradual return to normality looks hopeful for landlords and letting agents as the Section 21 notice period moves back from its temporary Covid extended period of 6 months to is normal 2 months on 1 October.

Desperate times called for desperate measures

When Parliament shut down for a month in March last year to combat the spread of coronavirus, one of its last acts in the final session, it passed through the Coronavirus Bill. The Coronavirus Act 2020 saw all notice periods for residential tenancies extended to six months for most grounds (including Section 21 notices), with exemptions only for certain serious cases.

So now, an important stage in the pandemic is being reached as we (hopefully) move towards post-Covid normality. This is happening for residential landlords, with the news that the notice periods they need to give to tenants to take back possession of their properties will revert to pre-pandemic lengths on October 1.

Rent arrears could soar

The good news is tinged with some anguish for landlords as furlough comes to an end, and those with benefit tenants, as their rent debts could soar when the soon to be removed £20 premium on Universal Credit payments hits. An in future , evictions could become much more difficult as on the horizon is the Government’s promise to remove the – much valued by residential landlords – Section 21* (no fault) eviction process.

Although the notice period was reduced to four months for most circumstances on the 1^st of June this year, and a further reduction to two months on August 1, where there was less than four months of unpaid rent, it will come as a relief to all residential landlords as the notices revert to normal after the end of September.

All Section 21 notices will then be for 2 months and also for Section 8 notices with periods of between two weeks and two months for reasons varying depending on such grounds such as serious rent arrears, persistent late payment of rent, breach of Right to Rent regulations, mortgage repossession and under Ground 1, the landlord wanting to move back in to was originally their main residence.

We are not out of the wood yet!

Should the Covid-19 pandemic worsen as we enter the Winter period the government has indicated that further restrictions could be imposed, this by recently tabling legislation giving it the powers to revert back to longer notice periods.

The extended periods have given tenants a welcome period of security if they were struggling financially, with landlords and letting agents often helping out where they could with rent reductions and rent holidays, but it does not alter the fact that arrears are arrears which legally are still due.

And for every tenant in genuine difficulty there will always be a small minority, as is the case with commercial tenancies, who take advantage of the legislation and refuse to pay rent even though they could. Although theoretically the courts are still available to resolve these issues, there are long delays and the expense involved is a “bit of a gamble” given that the outcomes would be uncertain.

Meanwhile the rent debt crisis looms

According to debt charity StepChange around half a million private tenants are now in serious levels of debt, with in total around £360 million outstanding in rent arrears across the UK. Their research shows that private tenants are on average around £800 in arrears with their rent payments.

The charity has argued, along with some landlords, that the planned removal of the temporary £20-per-week uplift to Universal Credit compounds tenants’ difficulties and arrears likely to soar..

A 61 years old tenant used as an example by the charity is £2,000-worth in arrears:

“I have recently managed to get some help from the council regarding my rent and am just about managing to pay it in full, but I’m still not really able to pay anything towards the arrears,” the tenant told StepChange.

“Luckily [says stepChange] the landlord seems fine with this at the moment, but obviously that could change at any time.”

One in ten could face eviction

The charity is predicting that around 10 per cent of all residential tenants in the UK – and these are in-work tenants, – are in fear of being evicted over the next 12 months.

Phil Andrew, chief executive of StepChange speaking to the PA News Agency, says:

“Covid support schemes, while a lifeline for many, haven’t been able to help renters address their arrears and with cuts to Universal Credit and the end of furlough imminent, there is a real danger of thousands losing their homes.”

A support lifeline is called for

StepChange is now calling for dedicated financial support to help ensure renters can safely wind down Covid rent debts and keep their homes.

“By establishing a dedicated rent debt fund, and by scrapping the planned Universal Credit cut, the Government can avert the threat of a rise in evictions, problem debt and homelessness that will compound financial and social problems and hamper economic recovery,” Phil Andrew suggests.

Chris Norris, policy director for the National Residential Landlords Association speaking to the PA News Agency, said:

“Many tenants and landlords have struggled throughout the pandemic.

“The end of furlough combined with cuts to benefits creates a perfect storm as those affected face the prospect of rent arrears getting worse.

“These are debts that landlords cannot afford to sustain indefinitely. The Chancellor needs urgently to follow the examples set in Scotland and Wales and come forward with transitional support to get Covid-related arrears paid off.”

A spokesperson from the Ministry of Housing, Communities and Local Government (MHCLG) had said:

“Our £352 billion support package has helped renters throughout the pandemic and prevented a build-up of rent arrears.

“We also took unprecedented action to help keep people in their homes by extending notice periods and pausing evictions at the height of the pandemic.

“As the economy reopens it is right that these measures are now being lifted. We will bring forward further proposals in due course to create a fairer and more effective private rental sector that works for both landlords and tenants, including the abolition of Section 21 ‘no fault’ evictions and further support for landlords where repossession is necessary.”

Keeping landlords onboard

If landlords are to be encouraged to stay in the sector and provide much needed rental accommodation, especially as house prices continue to soar, then the government must come up with a sensible and workable system of not only supporting tenants in need but enabling landlords to recover debt and quickly remove delinquent tenants.

*The Government has committed to abolish ‘no-fault’ section 21 evictions in the private rented sector. A Renters’ Reform Bill was promised in the 2019 Queen’s Speech to achieve this.

The Section 21 process introduced under the Thatcher Government by the 1988 Housing Act and credited with much of the impetus behind the growth of Buy to Let, enables private landlords to repossess their properties from assured shorthold tenants (ASTs) without having to establish fault on the part of the tenant. Hence it is sometimes referred to as the ‘no-fault’ ground for eviction.

However, private tenants, their representative bodies, and homelessness charities working in the sector have argued for some time that the ability of landlords to terminate an AST at short notice has a detrimental effect on tenants’ wellbeing. The current Conservative Government it seems has been swayed by their arguments.

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Evicting a rogue tenant during the pandemic ‘cost £35,000’ – claim

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The cost of the evictions moratorium for thousands of landlords during the pandemic have been laid bare.

Largely due to the loss of rent during the average 51-week, eviction costs when ejecting rogue tenants rose to £35,000 from £11,820 new research shows.

Letting agency Benham & Reeves says the costs and time required to remove an uncooperative tenant who refused to negotiate or communicate and who damaged the property were lengthened significantly by the temporary Covid eviction restrictions introduced by the government.

The company says this includes a 10-week delay caused by the disruption caused to the court system during the pandemic.

shocking

“The situation for landlords throughout the pandemic has been shocking and while eviction notice periods have now been reduced to four months, many continue to lose thousands in rental income every month due to rogue tenants and the long delays suffered while trying to evict them,” says Marc von Grunherr, a director of Benham & Reeves (pictured, below). 

“We’re talking about professional crooks who have taken severe advantage of legislation designed to support those who are actually suffering financially and are in need of support.

“We had one particular case where a tenant moved into a new property at Television Centre [in Shepherds Bush, London) in October 2019 and only ever paid the first month’s rent and nothing thereafter.

“The eviction hearing was on 30th March this year and we couldn’t get a bailiff appointment until 25th August 2021.  The poor owner suffered a loss of over £50,000 plus to add salt to the wounds the tenant stole all the landlord’s furniture.”

The research, which is based on average repair costs, rents and legal fees, reveals London to have the highest eviction costs during Covid (£45,574) and the North East the lowest (£30,290).

Get help evicting a tenant.

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Renamed – The Department for Levelling Up, Housing and Communities

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Where is the mention of Housing and the Housing Market as a priority?

The Ministry of Housing, Communities and Local Government has now been catchily renamed the Department for Levelling Up, Housing and Communities as the Government with former Bank of England Chief Economist

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