HMRC has revealed plans that would make it compulsory for a landlord applying for a licence for houses in multiple occupation to be registered with for tax purposes before being granted a licence.
It is seen as a move to clampdown on expats landlords who may not be paying tax in the UK on the money they earn from lettings although it would also apply to landlords living in the UK who may be not paying the correct amount of tax.
In a consultation that is open until 02 March 2018, HMRC says that the move is needed to combat tax avoidance and points out that England has more than 510,000 HMOs and 64,000 need a licence.
But the Department of Communities and Local Government plans to require thousands more homes to register for a licence, which could mean an extra 160,000 HMOs coming under scrutiny.
HMRC said: "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.
"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.
"The government values the private rented sector and wants to see a strong, healthy and vibrant market, which meets housing needs in a professional way. This includes ensuring that landlords are reporting and paying the tax they owe.
"Applying conditionality to HMO licences could support existing HMRC compliance activity by helping and encouraging more landlords to ensure they are compliant with tax laws before renting out properties. Similarly, there may be potential for tax registration checks to be incorporated into selective licensing schemes where appropriate and proportionate."
Some local councils have been cracking down on landlords with HMOs. For example, the London borough of Newham found that more than 100 landlords applying for housing licences were also avoiding tax after checks with HMRC.
