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Landlords should not bow to National Insurance demands

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28 January 2015
The taxman has been accused of overstepping the mark by demanding national insurance (NI) payments from landlords who should not have to pay.

And it is believed that some landlords may have paid up without question, concerned that otherwise they would fail to meet the January 31 deadline for completing their online tax returns and subsequently face penalties.

The problem has been brought to light by Megan Bourke, a tax adviser with the Gloucestershire based chartered accountants and tax advisers Hazlewoods. HM Revenue & Customs wrote to one her clients requiring payment of backdated Class 2 NI contributions on rental property profits.

But a judicial case, Rashid v Garcia, had previously confirmed that NI is not usually payable on let property.

Ms Bourke said: “The judge concluded that an individual would have to be doing a great deal of work to be considered self-employed through their rental activities.

“The individual in that case, Mr Rashid, did his own paperwork, rent collection and even personally maintained the communal areas of his properties. It was still held that he did not meet the criteria for being self-employed and was therefore not subject to NI.”

At first Ms Bourke thought the overstretched HM Revenue & Customs had simply made a mistake but more clients began receiving similar letters, including one client with just a single rental property and other advisers were having the same issues.

She disputed the NI payment demands with HMRC and at first they refused to back down.

“I tried to bring HMRC around to my way of thinking, getting more and more frustrated with the responses,” said Ms Bourke. “They were unable to provide a reasoned, legislative support of their position and finally backed down and agreed not to chase payment.”

She is concerned that other taxpayers may not have resisted the demand for NI payments, worried that it could have led to an investigation.

“The moral of this story and the message I would like to send is that I think HMRC will continue to try their luck with this one.”

Many landlords are not wealthy property magnates but have become landlords by chance, such as through inheritance, not being able to sell because of negative equity, moving in with a partner or some other unforeseen circumstance.
If you need any further assistance, please contact Megan Bourke on 01242 237661 or megan.bourke@hazlewoods.co.uk