HMRC has published details of research it commissioned in the first quarter of 2016, asking landlords and letting agents about their preferences for filing and paying tax on their rental income.
By Phil Kinzett-Evans
The research had several objectives but was aimed at whether landlords might prefer a system where agents withhold tax from rents on a monthly basis rather than the current file and pay system.
The research questioned twenty letting agents and fifty-four landlords and was carried out across a mix of locations in London, Manchester, Sheffield, Leicester, Birmingham, Bristol, and Cardiff. The sample therefore was small, and no detail was given about whether the properties were commercial or residential, Assured Shorthold Tenancy or Furnished Holiday Let.
However, the results were unsurprising.
Landlords tended to respond negatively towards the proposal, and in fact the reports states that there was ‘spontaneous rejection’ of the concept.
There were several reasons for this rejection:
- the disconnect between letting agents and tax experts, with the former being good at managing property and understandably not tax in the same way as accountants and tax advisers
- a lack of trust of letting agents and a desire not to divulge too much personal and financial information to them; or to allow them to administer financial payments to HMRC. There were concerns over accountability in certain circumstances of default.
- Potential misuse of data for marketing purposes.
- Privacy: for this scheme to work, landlords would have to view letting agents in a similar way to accountants, and this was a major barrier to uptake.
With Making Tax Digital (MTD) for income tax coming into effect from 6 April 2024 it seems scholastic that this research has come about now. Whilst quarterly reporting of income and expenditure for most landlords will be now be forced (where the total of turnover from rent and/or self-employment exceeds £10,000 in aggregate), there is no immediate proposal for the collection of tax up front under MTD for income tax.
It does however seem inevitable that the ‘endgame’ of this regime is not, in fact, more accurate, frequent reporting but more immediate collection of taxes (but that is not yet written into legislation) and it seems highly likely this is a natural progression of what is currently being developed under MTD.
For more information on MTD see here: Overview of Making Tax Digital – GOV.UK (www.gov.uk)
It is clear from the limited research undertaken that although landlords would like to be empowered to file their records more frequently, paying tax earlier is a step too far and landlords do not necessarily wish to trust the responsibility for their tax affairs to letting agents.
A system of withholding tax from rental income seems unnecessary when HMRC, the body tasked with the collection of tax, will have information about rental income on a quarterly basis and landlords will continue to file through self-assessment in the normal way.
Wherever the system arrives at, you can be sure that our teams of personal tax advisers and accountants are preparing for the changes under Making Tax Digital for income tax, working closely with our software providers to ensure our systems and processes will be ready for the change.
As agents to many landlords, we are happy to provide advice and to implement tax-efficient structures for property portfolios, both in the UK and overseas, as well as handling tax compliance for individuals and property companies, computing relevant tax liabilities as and when needed and acting generally as a proactive and capable trusted adviser.
Who can help you with MTD ?
We can help you with:
- Choosing the best accounting software package for your business. You can even request a free demo of them.
- Landlords’ property management software.
If you feel that you could benefit from chatting about MTD with one of our team, do get in touch. We are already answering our clients’ questions with MTD training and would love to help you get to grips with it too.