In a recent article from the Financial Times, James Parratt answered a query concerning a letter from the HMRC. The letter inquired about the tax status of the recipient's landlord, which suggested to them that they were responsible for paying their landlord's tax bill. James Parratt explained:
"This letter is part of HMRC’s information gathering process to help them establish whether or not your landlord is a 'non-resident landlord' — in other words, their usual place of abode is outside the UK. This is distinct from being a resident in the UK for tax purposes. A non-resident landlord can be an individual, company or trustees.
The non-resident landlord scheme requires income tax at the basic rate to be deducted from rental payments to the non-resident landlords of UK property. This tax is to be accounted to HMRC.
If your landlord is a non-resident, you are obliged to deduct tax from the rental payments you make to your landlord, and account for this to HMRC. If you pay more than £100 per week and your landlord lives abroad, you must register with HRMC and deduct tax from your rent, assuming you have not already been notified by HMRC of the scheme. Registration with HMRC may also be necessary if you pay rent to a UK representative of your landlord.
Do not worry — these deductions do not mean you are paying more; you are simply withholding the tax calculation from your landlord and accounting for this to HMRC instead.
While there is no obligation to respond to the letter and questionnaire, doing so will enable HMRC to help you if further action is required, or to tell you if no further action is required. If you do not respond, HMRC is likely to register the property for a tax charge and issue a tax determination to the landlord.
You are not obliged to inform your landlord that you have received the letter from HMRC. But if the tax authority determines that your landlord is a non-resident, you should inform your landlord that you are required to deduct tax from the rental payments.
The reduction in rent payable to your landlord will not affect your rights in respect of your tenancy agreement, nor give your landlord a new right to seek possession of their property. Your landlord will have no incentive to find another tenant as a new tenant will also be obliged to deduct tax from their rent payments if HMRC determines your landlord to be a non-resident landlord.
I suggest you engage with HMRC, completing the questions as far as possible, and do not ignore it. When responding, you should answer the questions to the best of your knowledge. HMRC suggests tenants should reply “not known” if they do not know the information for the specific questions.
You should not be overly concerned about any references to penalties in the letter. HMRC will not look to charge a penalty if mistakes have been made in the completion of the form attached to the letter. Penalties are only relevant where the tenant has chosen not to deduct tax at the right time or neglected to do so."