Landlords signing up to council licensing schemes will have to pass a tax check if HM Revenue & Customs gets its way with a new policy proposal.

HMRC says most landlords pay the right amount of tax but claims some are dodging what they owe.

To tackle the problem, the tax authority is proposing councils look at four ways of clamping down on shared house in multiple occupation (HMO) and buy to let landlord tax avoiders who must register with selective licensing schemes:

  • Tax obligations will be explained to landlords applying for a first-time licence, and they will be urged to register their property business with HMRC straight away
  • Landlords renewing licences should prove tax compliance
  • Landlords must show proof of tax registration and that their records are up to date
  • Setting up a network of approved agents who could check tax compliance for councils

This consultation proposes options to tackle the hidden economy by making access to licences needed to trade conditional on tax compliance

“The best way to tackle non-compliance is to prevent it happening in the first place, while cracking down on the minority who do break the rules,” says the HMRC consultation ‘Tackling the hidden economy: public sector licensing’.

“Few businesses can exist in a vacuum: most require services from other businesses, or approvals and services from part of local or national government. The proposals included in this consultation would integrate tax registration checks into some of these existing approvals to encourage more customers to engage with the tax system at the right time,” the consultation explained.

“These proposals would support a key aim of our strategy: to crack down on the hidden economy by preventing people from entering it in the first place. They would promote tax registration, helping customers to better understand their obligations to register for tax and the simple steps they need to take to declare their income to HMRC.”

Newham Council has tipped off HMRC about more than 100 landlord tax dodgers who have signed up for a licence to rent in the East London borough.