The deadline for submitting your self-assessment is approaching. Tax should be submitted by end of Jan if you do it online, if you are doing paper returns it is end of October.
It is time to ensure that you are fully updated with your tax issues. 5 October 2018, was the deadline for registering for self-assessment. If you haven't registered because you didn't realise you needed to tell HMRC about it or you need to pay income tax, you should contact HMRC immediately and explain your circumstances to them.
Many landlords are seem to be avoiding taxes either they don't know they have to pay taxes on their rental income or they are just trying their luck to escape.
In 2017, according to a guardian report, Up to 13,000 landlords in just one London borough have been identified as failing to declare their rental income. Estimates show that unpaid tax is costing the public nearly £200m.
HMRC is now actively looking for landlords who don't pay tax. They are cross referencing it with various databases available to them. These include Local Authority licensing schemes and tenancy deposit scheme databases. If your name appears on one of these and do not appear to be paying tax on rent they will shortly be coming to you. As a consequence, the landlords might have to face a penalty or they might even be subject to criminal investigation.
Saving money by not paying tax is not a solution as it will eventually lead to penalties, however there are certain ways you might be able to reduce the tax bills depending on your specific situation.
A large number of landlords are considering renting property through the limited company.
One broker, Mortgages for Businesses, reported that – for the first time – more than half the value of buy-to-let lending was provided to limited companies in the second quarter of 2017.
Some of the advantages of renting a property through corporate company are discussed below.
The rate of Corporation Tax is currently 20% which means your tax liability is reduced compared to if you are paying income tax as a higher rate tax payer at 40%.
From 2017 to 2020 the amount of Buy to Let Tax relief individual landlords can claim back will progressively cut from a maximum of 45% to 20% for high rate tax payers. However, this change does not affect Limited Companies. Therefore if you are a top rate tax payer, the tax payable via a Limited Company will be lower than tax on individual income.
With funds being able to be retained in the limited company you can control how much income is taken personally therefore reduce your potential income tax liability.
There will be more administrative cost like Completing Annual Returns and Company Accounts. However, an accountant can be hired to make it straightforward for you.
As well as the likelihood of higher borrowing costs, tax savings are far from guaranteed as a limited company. There is no capital gains tax allowance when you sell a property and you may also have to pay dividend tax if you withdraw money from the company.
You're holding property for the long term, it's likely to be beneficial – but it's important to seek independent tax advice before considering the limited company route.”
Landlords with existing properties also face a significant financial hurdle if they want to transfer these into a limited company. As well as a potential capital gains tax liability, there will also be further stamp duty to pay.
It is also important to consider how limited company lending is likely to shape up in the future. While increased competition can bring the rates down, there are also concerns the Government may look to lessen its appeal by equalising the tax treatment of individual and limited company landlords.
It all depends on the individual circumstances, before making any decision it is worth getting a professional advise.
Taxaccolega can get your affairs up to date with HMRC, from registration, to calculation of your income and completion of your tax returns. We can liaise with HMRC on your behalf and deal with all correspondence. We can review your affairs to ensure you are holding your property in the right structure for you, while claiming all the expenses you're entitled to. Please call us on 02081270728 or email on email@example.com.