Communities and Local Government CommitteeWritten submission submitted by Robert May

I am the former Sales and Training director of CFP Software Ltd, supplier of Lettings and Property Management Software to 43% of all Letting Agencies in the UK. The software and standardised training schemes I developed could be considered the engine that has powered the expansion of the BTL (buy to let) industry. As well as imposing best practice Client cash accounting procedures on customer Agencies, the market dominance achieved has directly influenced the majority of the competitor SAS (software as a service) providers to the lettings industry. Essentially well over 50% of the whole Private rented sector and close to 25% of the whole housing sector is working to procedure and best practice that I have formulated. With 19 years unblemished success and experience in this sector I feel adequately qualified to make submission to your inquiry.

Disclosure of Interest in this Enquiry

Addjuvare is the hub of a co-operative, on going, project that is looking to rationalise and improve the lettings industry through improved industry standards and transparency. The co-operative includes well respected Industry service suppliers with proven track records of honesty and integrity. Key objectives of Addjuvare are to facilitate greater provision of Social housing through Residential letting Agencies, replace a broken and ineffective system of tenancy deposits and establish rent as a priority debt to help reduce or eliminate tenant arrears. The Addjuvare “Generation 5” project has been presented to a number of key providers who are happy to support the project. While Addjuvare is a commercial project the intention is to address some injustices that exist in the current system.

Tax Avoidance and Money Laundering

Reducing tax avoidance and money laundering that is apparent within the private rented sector is key part of the G5 system. Without apportioning blame, HMRC are not coping or keeping pace with the rapid expansion of BTL, coupled with a naivety of the law some accidental Landlords (those who can not sell due to market conditions) not all the Tax revenue due on Private rented property is being declared or collected. With self assessment reliant on the honesty of landlords to declare income and with no further check available other than Section 19. Land and Property tax could be considered as a tax landlords can opt into rather than an obligation.

Suggestion submitted to Sir Nick Harvey June 2012

An SA105 (self assessment land and property form) is required for all rental income and expenditure. Each Tax paying landlord therefore should have a Unique Tax reference. If through a minor legislation change the Landlord’s UTR or UTR linked reference number is required for all Assured Tenancy Agreements new and existing, it would become immediately apparent which landlords do not have a UTR and therefore will not be declaring or paying tax on their Rental income.

This legislative requirement will not create a huge administrative burden if it is set as an obligation upon Letting Agents to gather record and report on annually, or as an obligation on Landlords who Let without an Agen

Where no Assured Tenancy exists through a lack of knowledge, letting to friends and family or to avoid legislation, the UTR scheme should be extended to the Electoral role and Utility companies. Requiring the UTR of the property owner will help identify where Water Gas and Electricity is being supplied to Tenants, this indication of occupancy would subsequently require an associated UTR or exemption reference be provided before services can be supplied.

Additional Benefits of UTR Linked Tenancies

Landlord portfolios can be identified, where a persistent problem exists or become apparent with one property or tenancy the UTR system allows other potential problem properties to be identified, a failure to gas check one property is an indication that other properties may also not have gas certificates.

Where a property or portfolio does not balance with tax records for previous tax years questions have to be asked how the property was acquired, thus identifying properties where ownership has transferred legitimately or with laundered money. Property remains a very effective way of laundering the proceeds of crime.

It is not unknown for benefits claimants to inherit or acquire properties that subsequently provide an income, the UTR Tenancy requirement being linked directly to national Insurance number immediately helps to identify Benefit Landlords.

Naturally some agents will face losing existing clients as some Landlords attempt to sink beneath the Radar, it should be an obligation on the Agent to report all Tenancies where the landlord is unable or unwilling to provide a UTR.

A dedicated web based lettings database would be simple to set up and could receive automatic daily updates of new and existing tenancies. This sort of database structure with an Agency interface already exists and is in widespread daily use with Agent uploading property data to Portals such as Rightmove. Landlord and UTR details are simple additional fields to be added to a portal upload.

Section 19, 1970 Taxes Management Act

(The requirement for Lettings and Managing Agents to submit, when asked, a report of all landlords, all properties and the income thereon).

Since 2005–2006 my previous company, CFP Software Ltd, has been able to provide HMRC with an automatically generated Section 19 report from all Agencies using the system. Instead of HMRC requesting section 19 reports several years behind the current tax year as is the case now is it possible to Automatically collect and collate (if implemented) by landlord UTR a countrywide Section 19 report which could be checked against current tax year SA105 returns in much the same ways as Self Assessment returns are checked against P60 submissions.

Provision of Property to Social Tenants

This suggestion focuses on the reason why there is a gulf between the Private rented provision and Social rented demand. A gulf currently exists and is unlikely to be bridged in the short term because of the way Social rents are administered. Whether by Housing Benefit, Local Housing allowance or Universal Credit, Social Tenancies caused unacceptable difficulties for both Agents and landlords in receiving and accounting for rent.

Housing benefit/LHA is paid in arrears on a 4 week cycle; such a system is difficult to account for and requires advance accounting knowledge to keep track of. Most agency staff, assisted by software, find it difficult to fathom. Both landlords and tenants are faced with the near impossible task of tracking an account which has seemingly continually growing arrears, occasional double payments in a single month and an annual account which necessarily runs for 58 weeks rather than the traditional 52. Rationalising the way Social benefit payments are made to landlords will in an instant increase interest in the providing social housing by previously benefit wary landlords and agents.

The Universal Credit system has will either by accident or design address that issue; Rent is paid to the tenant as opposed to the landlord giving the Tenant the dignity of paying their rent like private tenants.

The possibly unintentional benefits of Universal Credit once understood offer considerable opportunity to address the gulf between supply and demand, the long awaited Holy Grail for Private Investors.

There is an immediate but hopefully short lived problem with Universal Credit; the flagship government scheme to trial Universal Credit; Torfaen, South Wales has seen a sevenfold increase in rent arrears with claims that such an outcome was inevitable and that tenants have gone on a drinking/smoking binge with the cash. It is not possible to make detailed comment about Torfaen without knowing key basic facts; only limited information was released indicating that arrears have risen to £140,000 in 7 months. Without knowing how the rent was collected or the size of the rent role it is impossible to say how this 7 fold increase compares with arrears in the PRS. It is very likely the method of collection along with other factors are behind the increase and disguising a meaningful outcome of the test, some would argue that the tenants have been set up to fail. The Addjuvare target for arrears is less than 1%, a figure that should be achievable for both private and social tenancies.

Universal Credit will be frowned upon by most but it actually represents, if administered correctly, an opportunity to allow Private investors and Landlords to rent with confidence to Social tenants. It should be noted that a 1.4% (100,000 tenancy) swing in the balance of provision to social tenants would earn (circa) an additional £840,000,000 for landlords and a corresponding £84,000,000 (ex vat) for Letting Agents, It is therefore important that Torfaen is properly understood and possibly re-run as a trial scheme with the necessary adjustments made and re-trialled.

Regulation of Letting Agents

The CLG inquiry wants to look at Letting Agents and the level of complaints made against them. In isolation, 4000 complaints to the OFT, 1500 to TPO (the property ombudsman) and 2400 to Shelter are alarming figures, however a total of less than 8000 complaints not all of which were upheld in a largely self regulated industry of about 3.6 million Private tenancies gives a complaint level of 0.22% and that in itself does seem not warrant widespread regulation of the industry beyond its existing regulation. There has been widespread campaigning for regulation and figures presented in those campaign have be carefully crafted to paint a darker industry reputation than the actual level of complaints suggest.


It is my opinion that regulation and standard operating procedures do need to be reviewed and rationalised, currently there are too many regulators.

RICS, NALS, ARLA, NAEA, SAFEAgent all offer regulating guidelines for agents with the TPO lobbying hard for Letting Agents to be included within the Estate Agents Act. There is a fundamental problem with the industry but it is one of governance rather than operation. The infighting and fight to control of the industry and the commercial benefits associated with control are causing a lack of faith and direction in the regulators. The lack of governance extends above the Industry bodies; government departments without proper understanding of some issues have missed or are missing the opportunity to exercise prudent control over areas such as client cash accounting.

The PRS lettings industry is worth, based on known estimates and averages, £30 billion per annum yet there is not a single qualification or procedural requirement to account for such a vast sum of clients’ money. The closest thing to regulation is RICS Rule 8 which although widely accepted as a standard by ARLA NALS and NAEA is flawed and open to misinterpretation.

Essentially RICS Rule 8 (Do not overdraw the Client’s account) is misinterpreted to “do not overdraw the Clients’ account” giving rise to the notion that it is alright to use Peter’s money to pay Paul’s bill because one can always use Paul’s money to pay Peter’s bills so long as one doesn’t end up with an overdraft on the whole bank account. This is not the intention of rule 8 which is meant to be don’t use one client’s money to pay for another’s commitments and don’t spend money you do not have for any particular client.

Client Cash Accounting

However well intentioned, many of the 40 or so Client Cash accounting software systems fail to properly account for client monies, additionally systems are being used by staff without basic mathematics skills let alone comprehension of GAAP (accountancy principles) it is the case that unqualified personnel are training unsuitable staff with simply no regulation or standards required of either party. As a fundamental requirement of Client cash accounting it ought to be standard practice to operate “separation of duties”; the person who receipts money is not the one who banks it, the one who banks money is not the one to reconcile the account. For obvious reasons this is system requires two members of staff and although it safeguards Clients’ money from theft or temptation to steal it is not widely practiced because of the additional staff cost involved. Legislation ought to dictate standard operating procedures for client cash accounting with minimum standard of qualification or experience. All Client cash account systems should also provide for standardise auditing (not possible at present).

Because of the aforementioned issues with Client accounting there is widespread rumour of Rogue Agents, while there are criminal Agents, many Agencies find themselves with Client accounts that they can not explain. This is either the result of poorly written or untested software, simple incompetence, poor procedure or an unfathomable mix of all three.

It should be noted that although all of the regulating trade bodies have CA regulations not one has a dedicated division or person responsible for Client Cash Accounting or matters arising from such matters.

Tenant Referencing

One of the biggest causes of complaints against Lettings Agencies relate to Tenant Fees for administration, it is part of the G5 project that each tenant could be pre-referenced with references made available to prospective Agencies. Providing provision to pay once for a reference, tenants would no longer face the difficulty of multiple referencing fees for references which duplicate information. It is intended that the G5 referencing system becomes a single reference that calls upon up to date information for each tenant that tracks them from their first tenancy through to mortgage application calling upon rent payment history as part of an accurate Credit Check.

April 2013

Prepared 16th July 2013