Hi,
I am operating a split Sole Trader/Landlord accounting scheme using nominal mappings (as per QF online docs).
Everything is apportioned correctly (as far as I can see) however I have residential mortgage interest mapped to it’s own nominal code that is marked as “disallowable” in the nominal mappings:
however, in my mtd draft, there is no disallowable column at all and postings to this nominal code are showing up in the only expenses column visible (the allowable expenses one)
My sole trader MTD draft does have an 2nd disallowable expense column however, so seems something must be mis-configured - although I’m not sure if it’s me or QF!
Any help gratefully received..
Best, Jim
Hello @Jim_Wiley
There is no mechanism for uk-property MTD updates to declare disallowable expenses.
This is relevant only to self-employment businesses.
Property businesses don’t report disallowables
I mentioned this to the development team and they will change the mapping tool to reflect this.
Thanks Steve.
Under UK property law, residential mortgage interest is entirely “disallowed” as an expense. You receive a 20% allowance based on the total unclaimable figure at the year end.
I guess I should create a capital nominal to store the amount? Something like a drawings account, only separate for tracking purposes?
Will QF allow the 20% allowance claim as a part of my final YE submission?
Best, Jim
Hello @Jim_Wiley
You don’t need to create a capital or drawings nominal for the mortgage interest.
Continue recording the mortgage interest in QuickFile and map the relevant nominal under your UK Property MTD mappings to Residential property finance costs.
Although residential mortgage interest is not deducted as an expense when calculating your taxable property profit, the finance costs are reported to HMRC and are used when calculating the residential finance cost tax reduction at year end.
The tax reduction is based on the applicable HMRC calculation, so it is not necessarily simply 20% of all mortgage interest paid. Any finance costs that cannot be relieved in the year may be carried forward.
Thanks Steve,
I am using that nominal code. But as I’m a Sole trader with property income, I had to add it myself…
However, it is still showing in my profit and loss as an expense. Is this because I’m using nominal mapping and not a separate Landlord account? Obviously dont want it showing in my P+L as its not really an expense!
Hopefully there’s an easy fix/suggestion for excluding it from P&L?
Best, Jim
Hello @Jim_Wiley
Yes, it is correct for the mortgage interest to continue showing as an expense in your QuickFile Profit & Loss report.
The fact that residential mortgage interest is restricted for Income Tax purposes does not mean that it is not an expense in your underlying bookkeeping. The restriction is a tax treatment, rather than a reason to move the mortgage interest out of the Profit & Loss account.
HMRC MTD treatment
For MTD for Income Tax, HMRC specifically requires residential property finance costs, such as mortgage interest, to be digitally recorded and reported separately from other property expenses.
HMRC states:
“if they receive property income and incur residential property finance costs (such as mortgage interest), create a separate digital record for these costs and send them separately from other expenses, in their quarterly update information.”
QuickFile mapping
Therefore, you do not need to exclude the mortgage interest from your QuickFile P&L or move it to a capital/drawings nominal.
Instead, keep the mortgage interest on the expense nominal and ensure that nominal is mapped under your UK Property business to: Residential property finance costs
Tax treatment
This allows QuickFile to retain the correct accounting record while separately reporting the finance costs to HMRC under the appropriate MTD category.
The residential property finance cost restriction is then dealt with for tax purposes rather than by removing the mortgage interest from your bookkeeping.
Ok, thanks for the detailed breakdown!
Think I’m (finally) ready to submit my MTD… got there in the end!
Best, Jim
