When deciding to become a landlord, we get excited about rent collection (yay!) but conveniently decide to catch up on some sleep when it’s time to handle the finance management. It’s important to understand: even if you’re an accidental landlord, or you only own one rental property it’s a business, so treat it like one!
As an unincorporated landlord, your tax obligations should be a walk in the park if you have an efficient bookkeeping process in place. Residential landlords cannot track profits, pinpoint wasted money or investment yields without accurate business books.
Here are 5 tips you can incorporate into your bookkeeping process to save time and money with tax obligations. Your landlord friends will envy you when they find out you’re chillaxing, sipping Pina Colada, while they’re ripping their hair out trying to find receipts in time for tax return deadlines.
1. ctice real-time recordkeeping
Whether using a spreadsheet or a simplified bookkeeping software such as Propbooks – schedule one hour each month to make records of your property business transactions. The most important information needed is; the date, transaction details and amount. The advantage of using Propbooks is you can attach digital copies of your documents to the transaction you’re recording to reference at a later date if need be.
Don’t leave your accounts until the end of the tax year, this will only lead to an expensive accountancy fee and a headache in tracking errors.
I don’t know about you, but It’s hard enough trying to remember what I had to eat two days ago – don’t be that person trying to remember that property business transaction you did 8 months ago.
2. Have a separate bank account for your property business
Not having a separate account for your property business transactions will become a pain when trying to differentiate your personal and property business transactions. Again, this will be more work for yourself, or more money for your accountant if he or she has to spend time working out if your onesies ordered from amazon is a personal expense or relating to your property business.
If for any reason, the taxman needs to make an inquiry into your bank statements, do you want them to see your personal transactions?
3. Reconcile your books
Reconciliation is the process of comparing your internal transaction record-keeping against external sources–such as bank statements and rental statements (if you have a letting agent acting on your behalf) to make sure they match up.
Reconciling your accounts is essential for the financial health of your business as it helps to detect any errors or discrepancies.
4. Keep all receipts
Not having proof of business expenditure means you’ll end up having problems if the taxman decides to challenge your stated allowable expenses. Keep receipts for even the smallest amount as proof of expenditure.
5. Keep an orderly filing system
A garbage bag or random box does not qualify as a filing system–have a tidy physical and digital filing storage of all source documents, this means if your physical source documents go missing for whatever reason you still have digital backups.
Propbooks is perfect for digital backups–the application allows you to upload and store digital copies of your receipts for capital expenses, allowable expenses, bank statements, and rental statements in chronological order.
Last but not least, make sure you keep all receipts to your capital expenditure as these costs can be used as a tax relief against your capital gains tax once the rental property is sold.
The common problem landlords face is trying to track capital expenditure as some of these expenses may have been incurred a very long time ago, and trying to prove these expenses to the taxman can be a nightmare! Worst case scenario, you may have to pay back any tax relief received from HMRC, if they open up an inquiry and you cannot provide sufficient proof of transaction records (receipts). If in doubt in what tax relief you’re entitled to, seek advice from a property tax expert.