Following the completion of the latest round of Self-Assessment, HMRC is reported to be looking into undeclared income from short term lettings that it believes should have been included on tax returns in January.
With the rise in popularity of DIY lettings sites such as AirBnB, tax payers are reminded that they should be including all sources of income on their tax returns. This warning is especially important in the Chichester area with significant numbers of holiday lets and second homes catering for the likes of Goodwood and the beaches.
The crackdown begins gently
HMRC has suggested that it expected to see rental income declared on around 1,000 individual’s tax returns that, come self-assessment, appear not to have included it. Keen to treat it as an oversight at this stage, the tax authority has said it will send ‘nudge’ letters to those concerned to see if this prompts a re-evaluation of their tax affairs for the year to 5th April 2022. Subject to the ‘success’ or otherwise of that nudge, tax inspectors may be deployed to look in greater detail at those it believes have not declared rental income on their returns. The nudge letters are expected to begin landing in March 2023.
Genuine misunderstanding or evasion
With more and more people generating income from empty rooms, annexes, outbuildings and second homes, HMRC understands that people new to the short term rentals market need to get used to the fact that the money earned is the same as any other income from a tax perspective. It therefore hopes that these letters will be sufficient reminder to those concerned.
But failure to engage now and declare the income again in future years may result in penalties and interest being added to monies owed. As well as those it believes to have made a genuine mistake by not declaring the income, HMRC will specifically focus on those that have previously declared income from short term rentals, but not this year, and those it believes, by way of other ‘pointers’ are deliberately evading the tax.
As Making Tax Digital continues to roll out, HMRC’s ability to track down undeclared income will increase. The fact that it can say with some confidence that there are around 1,000 individuals they intend to pursue on this matter now, should be a clear warning that they are willing to focus on very small cohorts thought to be underpaying taxes.
If you earn money from short term or holiday lettings and want advice on how to manage this through self assessment, please contact our team today to find out how we can help you hold on to more of your earnings through careful personal tax planning.