Buy-to-let investors face CIS tax headache

Contractors could be hit by a planned clampdown by the taxman on buy-to-let investors.

CJ understands that HM Revenue and Customs officials are considering plans to impose the CIS construction tax scheme on more buy-to-letters.

The move would mean anyone buying a flat to rent could have to register for CIS if they carry out any improvement work on the property.

Revenue officials have held a series of meetings with accountancy experts as they bid to draw up clearer guidance on rules for buy-to-let investors.

One source close to the talks said: "Everything hinges on the Revenue's definition of a property developer.

"If you buy a property then rip out the kitchen before letting it, that can class you as a developer and you fall within the CIS scheme.

"It's a grey area at the moment and likely to remain that way for some time."

Buy-to-let investors could face fines if they are not registered with CIS. And contractors working for non-registered individuals could also run into trouble.

The source said: "Contractors carrying out the work are at risk if the Revenue finds that the work should have been carried out within the scope of CIS. They could face fines or losing some part of the contract value."

An HMRC spokesman said: "Ordinary buy-to-let landlords are not within the scope of CIS unless they are building or re-developing buildings as part of that business.

"Those people who buy a succession of properties to renovate and sell on, hiring various tradesmen to carry out different aspects of the work, would probably need to operate the scheme."