Landlord tax investigations - protect yourself now

It’s a new year, and it looks like HMRC have been making some resolutions of their own.

The Revenue has set about expanding its spot-check regime, meaning potential investigations for thousands of landlords and business owners across the country.

Landlords need to be prepared for an unwelcome knock on the door. But what exactly is HMRC doing – and how can you protect yourself?

What is HMRC doing?

HMRC is planning to investigate many more landlords and small businesses this year, and is expanding its investigations on several fronts. The first is its controversial Business Records Check regime. The scheme was trialled in selected areas last year, and the Revenue is now preparing to roll it out across the country.

The Revenue expects to carry out checks on around 20,000 small businesses a year. While this figure is lower than its initial target of 50,000, it still spells potential trouble for a large number of small enterprises. According to a Freedom of Information request HMRC planned to take on around 90 new members of staff in order to help it conduct its 2012 investigations, suggesting that it considers the checks to be an important priority.

The purpose of the visits is to ensure that businesses have kept sufficient records, and that those records back up their tax returns. Business owners that are found to have kept insufficient or inaccurate records could be fined.

There has been a sense that landlords are immune to these investigations. In reality, though, landlords are equally at risk. In fact, towards the end of last year the Revenue announced the establishment of a new task force specifically charged with investigating landlords in the North East of England and North Wales. It seems reasonable to expect that these investigations will be extended across the country as part of the Revenue’s continued drive to clamp down on tax evasion.

How can I protect myself?

Accurate record-keeping is the most important way in which landlords can protect themselves. You are legally obliged to keep comprehensive records detailing rental income and related expenditure. You must keep these for at least six years following the end of the tax year to which they relate.

You should also ensure that your tax return is accurate. Anecdotal evidence suggests that HMRC has dished out fines for relatively minor infractions, and it is therefore important that your tax return is fully supported by your records.

What about insurance?

As well as ensuring that your books are in order, you may benefit from legal cover as a means by which to protect yourself against the costs of an HMRC investigation.

Legal cover can help cover the costs you incur as a result of an investigation into taxes including Self Assessment and VAT. Depending on the circumstances, it may also cover the cost of fighting an action in the local courts.

Perhaps most importantly, though, good legal cover will also provide you with a helpline, on which you can get advice on your tax requirements. This can help to make sure that you avoid problems arising in the first place.

Of course, tax cover of this kind requires you to meet your legal obligations. You still need to keep the records and pay your tax on time.

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