HMRC Investigating Landlords Through Data Analysis from Tenancy Deposit Schemes

In our latest round-up of HMRC tax audits and investigations, landlords have been under the spotlight, with the tax office examining data to try and identify potential instances of under-declared income or capital gains.

HMRC has been leveraging access to data and records over the last few months, aiming to recoup taxation income to address governmental targets and crack down on possible sources of untaxed income or profits.

We reported recently that taxi drivers, particularly self-employed ride-hailing drivers, were being assessed and, in many cases, issued HMRC notices, with tax inspectors using licensing information to cross-check tax return details.

Tax Records for Buy-to-Let Landlords

Landlords and letting agents need to collect and safely store deposits paid by their tenants, per The Housing Act 2004. There are specific regulations about where deposits are kept and how they are returned when a tenancy agreement ends.

Tenant deposit accounts must comply with government requirements, and there are only three possible schemes landlords can choose between.

The three providers, MyDeposits, the Deposit Protection Service and the Tenancy Deposit Scheme, are required to provide details to HMRC or other government agencies on request, which the tax office is using to collate data about landlords.

HMRC uses data analysis to see which landlords have collected deposits during the tax year, to what value, and how that corresponds with income declared on their self-assessment returns.

HMRC Landlord Investigations

Around 600 landlords have thus far received letters from HMRC querying their declared rental income.

Although it is not an exact science, a deposit is normally worth around one month of rent or sometimes five weeks. HMRC can calculate how much rental income they project the landlord will have achieved for every deposit recorded against every individual property.

For now, if you receive a letter, you are required to:

  • Check your 2020/21 and 2021/22 tax return information.
  • Verify whether your declared income is accurate.
  • Ensure any 2021/22 returns still need to be submitted are correct.

Landlords are also reminded that they are obliged to declare the sale or disposal of any rental property sold during the tax year and pay the appropriate capital gains tax charge.

Receiving a letter is not equivalent to a compliance check or full tax investigation but has a 30-day deadline, by which time recipients need to respond or correct their filed returns.

If you receive a letter and are confident your declarations are correct, you don't necessarily have to do anything but are advised to contact HMRC via responseteam6@HMRC.gov.uk.

There is also a phone line, but an email ensures you have a written record of your correspondence.

Managing an HMRC Tax Notice

Receiving a letter from the tax office can be worrying, and in some cases, even where SAS Accounting acts as your tax agent, we may not have received a copy – please get in touch with us straight away if you have a notice or letter of any kind.

If you have inadvertently under-declared your rental income or believe you have made mistakes on your returns for several periods, you must submit a full disclosure through the online Let Property Campaign portal.

There are other complexities, particularly if you have claimed roll-over asset relief but have applied this incorrectly – errors that HMRC deems deliberate can attract penalties and fines.

In any circumstance, the first step is to contact SAS; we will review your letter or tax notice, advise on the best ways to respond, and help you navigate the process to ensure you are fully compliant.


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