UK landlords should take care in reporting rental incomes

With the January 31 deadline for submitting self assessment tax returns to HMRC and paying any income tax due now passed there’s a temptation to put all thought of tax affairs to the back of your mind.

Some time ago, HMRC announced it would be looking into under declarations of rental income by landlords in its Let Property Campaign, giving buy to let and other private landlords the opportunity to make a full and voluntary declaration of any tax owing on relatively favourable terms.

HMRC has widened its sweep and has the power, through issuing statutory notices, to force lettings agents to provide details of rents collected on behalf of all landlords. It estimates up to 1.5 million landlords may be under declaring every year and has sophisticated data gathering abilities to check figures.

Already, it has announced that almost £8 million has been collected from landlords who under declared so make sure your house is in order, so to speak, and voluntarily contact HMRC if you suspect there may be anomalies.

Tenant deposit loans

In the last issue of Clearer View I outlined the new tenant deposit loan scheme launched by the Government into both the public and private employment sectors.

It’s worth pointing out that if a deposit is being paid by a third party on a tenant's behalf by way of an agreement with that tenant then the s213(10) of the Housing Act 2004 definition applies to those paying deposits on behalf of tenants as "relevant persons" and they must be served the information prescribed by the Housing (Tenancy Deposits)(Prescribed Information) Regulations 2007 covering key information about the tenant deposit and where it is protected.

Failure to do so could mean it is not possible to serve a valid notice under s21 of the Housing Act 1988 on any tenant when the prescribed information has not been served on them and on any relevant person. In addition either the tenant or the relevant person (or possibly both of them) can make a claim for the usual financial penalties.

Landlords and agents must convey the necessary information to employers in good time.

Lisa Simon, 

Partner Head of Residential Lettings

T: 020 7518 3234 

E: lisa.simon@carterjonas.co.uk

Easier to qualify for the ‘sporting exemption’ from VAT

In recent times some shoots have been unexpectedly caught by HMRC where they have failed to charge their “members” VAT. This has come as a very nasty surprise and often makes an already unprofitable exercise in to something which is totally unaffordable.

VAT is charged on a “taxable supply”, and in this context, the right to shoot and take game, as well as making land available for shooting are considered taxable supplies. This latter point is important to understand from the landowner’s perspective, in that even if a landowner has not “opted to tax” his land and therefore does not have to charge VAT on rent, he will still have to charge VAT on the shooting rights leased to the shoot if the landowner is VAT registered.

VAT registration only becomes compulsory when the taxable turnover of a business, which may include a shoot, exceeds £81,000. Clearly this will only be relevant to larger enterprises but it is surprising how much running a shoot can cost. Up until 1st January this year, any shoot with a turnover in excess of the threshold which charged fees would need to register for VAT, unless it fell within a narrow exemption.

The exemption applies to supplies made by an ‘eligible body’ of sport-related services, but only where supplies are made to members of that eligible body. A shoot can fulfil the requirements of being an eligible body, provided it is non-profit making, and not subject to commercial influence.  

In this respect a syndicate whose members simply share the cost of running the shoot should fall within the exemption, but the water becomes muddy where the syndicate lets one or two days to guns who are not members of the shoot. This is common practice where the syndicate is looking to increase its income so as to reduce the cost of running the shoot, but the benefits of doing so will backfire if as a result the members have to be charged VAT on their membership fee at the rate of 20%.

If a shoot is being run on a commercial basis, letting days to corporate clients for example, charging VAT is understandable but it seems harsh that members of a syndicate of individuals, who are simply trying to cover the costs of their shooting activities, may also have to pay VAT.

However, from the 1st January it seems the rules have been simplified so as to make it easier to qualify for the ‘sporting exemption’ from VAT which now applies to all VAT-able supplies made by eligible bodies that enable participation in a sport, whether supplies are made to members or non members.

Having said that VAT is a complicated area of tax, particularly for Landed Estates where opting to tax land and the resultant partial exemption rules require careful consideration but at least in the context of a shooting syndicate, matters appear to have become a little more straightforward.  

James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk