Myth-busting – Electrical Safety installations Act 202011:19 AM, 3rd August 2020
About 4 days ago 64
The great landlord receipt rip off is underway again as property investors scurry around to find expenses to off set against their rental profits.
The common scenario is probably being repeated in homes and up and down the country.
The classic conundrum for landlords is a tradesman comes around to quote for work and gives two prices – one for cash in the hand and another plus VAT.
The temptation is to pay cash and save 20% on the cost.
The problem is a tax inspector will look at a claim for £5,000 for fitting a new kitchen and will call for the receipts.
The landlord can’t provide them, so the expense is rejected by HM Revenue & Customs leaving the landlord to pay an extra £1,200 in tax as a basic rate taxpayer or £2,400 as a higher rate taxpayer (40%) – negating any saving on VAT.
Landlords need to get real about the true cost of cash tradesmen – there is no saving for the property owner. The only person laughing all the way to the bank is the tradesman who pays no income tax or national insurance on their hourly rate for the job.
Many landlords will include the costs in their accounts, but they are in for a rude awakening as HMRC investigators are visiting up to 50,000 small businesses a year to check their financial records – and they reckon 12% are making expense claims they cannot support with documentation.
The investigators are looking back five years and can fine landlords and other businesses up to £3,000 for failing to keep proper accounting records.
The classic riposte from a landlord is that they have put the claim in previous years and the tax man has not come back.
The trouble is the rules have tightened up and special units are looking at landlord tax. The odds are every landlord will have a tax inquiry within six years of starting to let property – and the review will even look at accounts for properties that are no longer owned.
Many landlords will also give the excuse their accountants have passed the expense. The truth is the accountant probably has not seen all the receipts and expects the landlord to provide the documentary evidence if the tax man comes calling.
The great landlord receipts swindle is just that – a collaboration in tax evasion by helping a tradesman trouser cash that he should pay his dues on.
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