When you own property and decide to become a landlord, there are so many rules and regulations you need to know about. One of these is the increased burden of accounting.
If you get this wrong, your livelihood could be at risk.
So, if you’re unsure about accounting and bookkeeping as a landlord, this article is for you.
Why do you need to keep records?
As a landlord, you’re gaining income in return for a service, the same as any other business. Just like other businesses, you could be taxed on the income.
It depends on how much income you make from the property and whether you deduct any expenses or claim any allowances.
Before we look deeper into accounting, let’s look at the different types of landlords.
The different types of landlords
When it comes to taxes, there are four different types of landlords you need to know about.
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Resident Landlords - these are those who live in the property and rent a room to others. Keep in mind that if the rooms are let on a Bed and Breakfast basis, you’re considered as operating a guest house; therefore, income is through trade and not rental income.
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Professional Landlords - if you privately own and rent properties as an occupation, you’re operating a trade. This means you’re liable for tax and National Insurance contributions. Typically, being a landlord is this person’s main job, which they maintain through renting several properties.
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Buy-to-let landlord - typically taxed the same as a professional landlord, though on a smaller scale. These individuals are usually supplementing their income from their main job and may be using a letting agent to manage their portfolio.
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Limited company - a popular way to manage your rental properties is to create a limited company and have the company manage the properties. It can be seen as tax-efficient as the company pays corporation tax on the income rather than the landlord paying income tax. However, the individual running the company may be restricted in how they can withdraw money from the company.
Why you need to keep financial records
It seems like a headache keeping records when you only have one or two properties that you rent out to make a little extra income, but you still need to keep them.
When you’re reporting the income on your Self Assessment, you need to be able to justify where the income comes from.
There are other reasons you need to keep records, such as:
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It’s a legal requirement - when submitting your Self Assessment, you need to be able to justify where the income has come from.
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Tracking your expenses - while you might not mind spending a little on property maintenance, you still need to keep track of the money. If the expenses add up, they can be used to reduce your tax bill.
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Accuracy - depending on the amount of your income and expenses, you may be able to claim tax relief. However, this is only if you pay the basic rate of income tax; higher payers cannot claim relief. Therefore, you need accurate records.
How QuickFile can help you
If you’re a private landlord (not a limited company), our landlord accounts are suitable for you.
Within the landlord account, you can add your properties and tenants, with the option to go into tenants and add documents, set up direct debits and review their payments.
As long as everything has been entered accurately, QuickFile can also provide you with a tax summary; however, this is for guidance purposes only, as it does not account for any other income you may have.
For more information about how QuickFile can help you keep your accounts in order for your rental properties, check out our support article: Landlord Bookkeeping Basics.