Guide to Accounting and Tax for Landlords - VW Taxation Ltd

Guide to Accounting and Tax for Landlords

Like any business, landlords need to keep financial records, maintain their accounts and pay tax to the HMRC on their profits.

Hiring a specialist landlord accountant makes sense if you want to minimise your payments to HMRC and maximise your profits. Here we take a look at closer look at why this makes sense and what challenges landlords, both big and small, have to contend with when it comes to keeping the books.

Do I need an accountant for rental income?

Buy to let properties have become increasingly popular for those with money to invest. They allow individuals and businesses to purchase a property not only for its long-term investment value but also to bring in extra income from renting out to tenants.

While specialist accounting for rental income on the surface may seem quite simple, especially if you just have one property, it’s an area that is becoming increasingly complex. Many landlords often don’t keep proper records or fail to claim the right deductions so they end up paying more tax than they need to.

Hiring a specialist landlord accountant is not only affordable nowadays but it can help keep you on the right side of your tax obligations and potentially improve your bottom line. The types of services provided include:

  • Keeping your accounts in order
  • Helping you understand your profit and loss better
  • Better self-assessment of expenses
  • Planning for Capital Gains Tax

If you are looking to expand your rental business, perhaps even form a limited company, a professional landlord accountant will be indispensable, keeping you on track with your finances and even help you obtain loans for expansion.

What do property accountants do?

A landlord accountant can handle all the financial aspects of your property management, including the tracking of cash activity for repairs and maintenance as well as the income received from tenants and payments for other services.

  • They will be able to keep you up-to-date with your current financial situation so, if you do wish to expand, you know exactly where you stand.
  • They also, of course, help complete your self-assessment or company tax return so that you only pay what is due.
  • In larger property organisations, an accountant can also help address financial concerns and find solutions, including helping to get additional financing.

How do I find a good property accountant?

Working with the right team is important in any business activity and it pays to do your due diligence before you hire the services of a landlord accountant.

For instance, is this an area they have experience of dealing with and are they up to date with the current law regarding buy-to-let properties?

Our advice is to look for a property accountant that:

  • Takes an interest in your business and, just as importantly, your future goals.
  • Evaluates your situation properly and doesn’t make sudden bold and undeliverable statements about what they can do for you.
  • They have property expertise and are not just a general accountant.
  • They are up-to-date with the latest rules and regulations.
  • They aren’t just processing your accounts but can advise your business as well.

How do you account for rental income?

Working out your rental income can be a little challenging, especially when first setting up a buy to let property. There are more overheads than many people think, especially if using a specialist service such as a letting agent.

You may, for example, provide a fully furnished property or want to add in the cost of heating and electricity to your rental income. There will also be the cost of repairing or maintaining the property and the added outlay for third parties who help you out in some way.

You may want a separate bank account for your letting business and work out a process of tracking incomings and outgoings in real-time. There may be steps you can take to streamline processes such as opting for making tax digital and using an accounting app that is tailored for landlords.

What tax do you pay as a landlord?

As with any business, you pay tax on the profits you earn but this can vary quite widely for landlords. In general, you pay tax on any amount of money that is left after you have deducted all your expenses. That can also include some of your mortgage interest.

It gets a lot more complicated if you have more than one property. You can lump all the receipts and outgoings for these together as one concern but if you have more than one rental business these have to treated separately for tax purposes. There are also different rules for tax if you own a property overseas.

Your rental revenue also gets added to any income you earn from another job. So if you are employed and earn £30,000 and earn £10,000 in profits from your buy to let, then your taxable income will be £40,000.

How much does an accountant cost for a tax return?

A lot depends on the size of your business but the average cost of hiring an accountant to complete and file a self-assessment tax return is around £300. While it’s an additional cost for landlords, there are often savings to be made for smaller businesses that haven’t considered what they can reasonably deduct.

What can landlords deduct from taxes?

An allowable expense is any financial outlay that is used exclusively for running your rental business. This could include carrying out maintenance, safety checks, and repairs. If you use a letting agent, it will include their fees.

You may also pay for certain bills such as council tax or water and heating and or hire services such as cleaners and gardeners on occasion. You can also get some (although a reduced) relief on mortgage interest payments.

Is a landlord considered a small business?

Yes, if being a landlord is your main job. Whether you are earning a small income or operating just one property, you are aiming to make a profit and need to fill in a self-assessment tax return. HMRC view a property that is rented out where the landlord doesn’t work at it regularly as an investment rather than a business. You are still liable to pay income tax, however, as part of your overall earnings.

Accounting and tax can be complicated issues for landlords which is why it makes sense to use the services of a professional property accountant.

If you have a buy to let property or manage several rental units, contact the team at VW Taxation in Portsmouth to see how we can help.

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Picture of Gary Ellis | Director | VW Taxation
Gary Ellis | Director | VW Taxation

VW Taxation are self employment tax specialists based in Portsmouth. We specialise in tax accounting for contractors, limited companies and the self-employed.

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