Landlords – are your books in order?

If you are a property landlord errors in your bookkeeping can make it very difficult to monitor your profits and keep track of expenses, as well as monitoring yields on investments. 

Here are some tips to manage your books as a landlord and prevent the possibility of an investigation by HM Revenue and Customs (HMRC) into your property income. The costs associated with an investigation can be devastating, and even if you are successful in defending yourself against HMRC you cannot recover your costs from the tax authority.

1. Update your books on a monthly basis 

Only a handful of landlords maintain their books monthly. Consequently, when the year-end approaches, they are left with a mountain of bank statements and expense receipts across their property portfolios. This gives accountants a mammoth task that’s often more expensive and long-winded than it should be for landlords. This leads to higher accountancy fees and the possibility that expenses go unrecorded.

2. Reconcile your books 

Set time aside to reconcile your books. This means checking off your rental income and expenses against your bank account entries. Regular reconciliation of your books will ensure that everything is inputted correctly into your self-assessment tax return and that no income or losses are unaccounted for. The UK has one of the largest tax codes in the world, so preparing even the most straightforward tax return can be complicated. There are various deadlines and responsibilities for taxpayers to be aware of. Again this will save both time and money when having your year-end accounts and tax return completed by your accountants.

3. Don’t send your rental income through a personal bank account 

Using a personal current account to operate your property portfolio is one of the more common mistakes landlords tend to make. We would always advise landlords run their rental income and expenses from an account that is separate from your personal living costs. There are lots of low-cost online bank accounts to choose from. They will also categorise expenses and income to assist in the bookkeeping processes.

Not doing so requires you or your accountant to spend more time separating business and personal expenses.  

4. Keep track of your expense receipts 

One of the biggest issues landlords experience is misplacing or losing expense receipts. Without a record of your expenses, it’s impossible to prove your expenditure related to property letting, for example, improvements or alterations on a property in your portfolio. Subsequently, you are unable to claim tax relief on your outgoings, either in your annual accounts or when you come to sell a property. 

An easy way to save hours of landlord admin is to record your expense paperwork instantly using the Dext app or a similar expense scanning app service. Dext makes it easy to send your expense paperwork instantly to your accountant and ensures you never

lose another receipt. This software allows you to send photos of your expense receipts from your smartphone directly to your accountant. You can also automate regular supplier invoices, as well as electronic receipts, ready for bulk processing. It all helps to create a more accurate financial picture of earnings from your property portfolio. 

5. Keep your files organised 

Make sure your files, whether paper or electronic, are organised so that your tax reporting is as accurate as possible. Not having the necessary files or information to hand can increase the drain on resources for bookkeeping. 

Landlords should always ensure they have the following files and documentation close at hand: 

  • A basic register for all capital expenses, which can be used to offset against capital gains when a property is sold. 
  • A separate file for ongoing and regular income and expenditure. 
  • Regular statements from your business bank account – making it easy to reconcile your income and expenses. 
  • A file containing all correspondence from HMRC, including your proof of filing and tax codes. 

 6. Use bookkeeping software

To ensure that you run your business at a profit you should use bookkeeping software to keep up to date with your financial records.

Other alternatives are:

  • A ledger or book
  • A Excel spreadsheet;
  • Or software that can do the work for you by linking to your bank account.

You need to track all income and expenses to see if your property is actually making a profit.

The advantage of bookkeeping software is that it holds information about the tenant as well as the property. This is essential for a property portfolio.

At the push of a button, you can see expenses and income without worrying as to whether you have missed or forgotten to write down an important bill, or whether the rules on claiming a particular expense have changed.

Quality bookkeeping software measures your profitability and so reduces accountant fees and satisfies HMRC requirements.

Paul Simpson
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Paul Simpson

Paul has spent his entire working life in financial services, first in banking, then as an independent financial adviser and estate planner. Now he is running his own TaxAssist Accountants business in Market Harborough. Paul uses all of his years of experience in running his own businesses and his extensive tax knowledge to help small businesses and personal tax clients pay the right amount of tax and remain compliant.