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Ex-HMRC employee Tom Casagranda outlines research techniques used by HMRC for the purposes of detecting undeclared rental income.

Introduction

In my previous article, HMRC Enquiry Selection, I highlighted how I located various cases for compliance purposes. The main purpose of this article is to highlight HMRC's pursuit of the landlord.

Newspapers as a Research Source

Primarily, my main mode of research was via the newspapers. The local newspaper, in my case the Reading Chronicle, would showcase planning applications for flat conversions: if the planning application was for a serries of flats from one house, I would try and ascertain if the landlord was filing a tax return. I would check for a UTR, Unique Taxpayer's Reference, which is a 10 digit number. I would then see if the taxpayer was declaring the letting income: if he/she was, I would enter on the "Not Worth Further Pursuit" database.

Check to See if Income Undeclared and Extent of Underdeclaration

However, if the landlord was Self Assessment registered, and was not declaring the income, the fun would start. I would proceed to sending what was known as a 116, under TMA 1970 s 18A(3), requesting information from the Distrcit Valuer: this would tell me how much the landlord would have paid for the property, the date of purchase, and how much the purchase was for, and from whom the landlord purchased the property.
 
When this was received, I would access, subsequently, Experian, to see if any further linked addresses were available: if so, I would send more 116s, and see if more properties were undeclared. More often than not, this yielded spectacular results, a case in point being one gentleman who owned a plethora of serviced apartments in Reading and was not declaring them to the tune of £3,000,000.
 
If I was unsuccessful with linked addresses via Experian, I would request from the District Valuer, what was known as a Covosearch: this would be a historical list of properties, purchased by the landlord, or in some cases members of the landlord's family, or friends and associates. If the family member was a minor, I would ascertain that the landlord was attempting to limit his tax liability, and that non-compliance was taking place: in one case of mine, a 9 year old purchased a £750,000 property in Shiplake, near Henley-On-Thames.

Once the landlord's non-compliance was ascertained, I would put the case through for a full enquiry. If, however, the landlord was not on Self Assessment, he would be referred to the Hidden Economy Team, where he would be requested to complete returns with the letting income contained therein.

Other Sources of Information

Apart from the local newspaper, another source of locating non-compliant landlords was via a Gangmasters' project, which had offshoots of properties owned in which an incredible amount of tenants were placed in just one room. More often than not, a family member would be acting as a landlord, leaving the Gangmaster to exploit the workforce, although some Gangmasters did dabble in non-declaration of rental income.
 
A further way of locating non-compliant landlords was to establish via the London Information System (LIS) database, how much housing benefit was paid to a landlord via a local council for the tenants. In a husband and wife case, I interrogated the database, and established that in one year alone the husband and wife were in receipt of £200,000 from Slough Borough Council for council tenants. I managed to ascertain, from previous years, that rental income was jointly undeclared since 1994. Under 18A(3) of the Taxes Management Act, local councils were duty-bound to place this information on the LIS database for HMRC.
 
Finally, I was also able to locate, via LIS, rental income submitted to HMRC from letting agents: this would suggest there is nothing new under the sun about the pursuit of landlords by HMRC.