Accurate record-keeping is vital to ensure that your tax return does not cause you stress – but you must understand - what information should you keep? And how should it be cared for efficiently? From dealing with tenants to organising your tax return, if there is one piece of advice we want to convey is - keep everything organised, do everything digitally, and please, please make backups. It can take some time to establish a record-keeping practice, particularly if you are a first-time or accidental landlord comfortable with having your tax handled through PAYE.
It's certainly a task that's easier if you check in periodically rather than trying to catch up on a years worth of paperwork in December – which, unfortunately, is all too common. The better organised your records are, the better understanding you have. Maintain paper records in whatever system works best for you. Give unique names to the electronic files, preferable ones that make them simpler to identify via search, and consider grouping them by date or record type in folders. We propose that you must take the digital approach now as it's almost 2021.
- What records should be kept by the landlord?
- How good maintenance of records helps reduce your tax bill?
- How can DNS help?
What records should be kept by the landlord?
As a landlord, you are required to keep any records and receipts related to your rental property. This includes –
- Your rental income.
- Income earned from additional services provided by you to your tenants, such as repairs, maintenance etc.
- Dates on which your property was let out.
- Bank statements.
- Receipts and invoices for deductible expenses incurred in operating the property.
You must retain your records for six years following the end of the tax year to which they apply. Along with your income and expenses, you should keep track of any capital investments made in connection with the property.
That covers the fundamental principles, but what about the details?
Self-assessment tax records– If you file a personal tax return, HMRC states that you must maintain records that are accurate, full, and readable.’
If HMRC requests you to showcase your records and you cannot produce them, you may face a penalty.
They are not concerned about how your records are kept, but they must be sufficient to demonstrate the income received and costs incurred. There are restrictions on how long you must keep them. If you file your tax return on time – the next deadline is 31 January 2022 – you must keep relevant records for at least 22 months after the end of the relevant tax year if you are employed or a landlord. If you are self-employed or in a partnership, you must keep records for a period of five years and ten months after the end of the tax year.
Making Tax Digital (MTD)– MTD is currently a requirement for businesses (including landlords whose VAT taxable sales is from commercial lettings) that are VAT registered and have a taxable turnover of more than £85,000. The government has announced that from April 2023, MTD would apply to self-employed individuals and landlords with a gross revenue/rental income of more than £10000 (before deducting any expenditure). From 6 April 2023, all such enterprises will be required to keep digital records and submit quarterly income and cost reports to HMRC. A final return for the tax year will then be filed to confirm the annual figure. HMRC has stated that this is to avoid errors and has confirmed that tax payment deadlines remain unchanged.
MTD will also be rolled out to Limited Companies, although no timeframe has been established.
Limited company records- If your property firm is incorporated as a limited company, you are required to keep records for six years from the end of the relevant financial year or longer in some instances. The Companies Act mandates that you maintain adequate accounting records that contain an accurate record of daily activities. The responsibilities are greater than those of an individual.
Additionally, you'll need to keep track of –
- The shareholders, directors, and company secretaries.
- The results of shareholder votes; debentures (loan repayment promises).
- Indemnities (security against legal obligations)
- Mortgages secured against company assets.
- Share transactions and loans.
Limited companies must keep track of money received and spent, details of company assets, stocktaking data, company debts and information on how many goods are purchased and sold and to whom.
How good maintenance of records helps reduce your tax bill?
Apart from meeting regulatory obligations, there is another reason to maintain thorough and accurate records: it enables you to lower your tax bill. When it comes to houses and flats, in particular, keep detailed records of all expenditures on property maintenance. This is because they will almost certainly be considered allowable expenses, deductible against income, or contributes to reducing a future capital gains tax bill. Additionally, if HMRC questions your tax return, records make it faster and easier to respond to their inquiries. Additionally, it provides strong signals of reliability and transparency.
How can DNS Help?
Consult DNS accountants if you require additional information on record-keeping or are unsure how MTD will impact your landlord business. We may provide you with tailored guidance based on the nature of your business. As a leading property tax return accountant, the more information you will provide us, the easier it is for us to identify potential tax relief options – or to advise methods for future tax reduction. Filing a property tax return can be a daunting task, but we can assist in making the process simple and painless. We can assist you with any aspect of the process, from tax reliefs available to filing the property tax return. Allow us to handle the details while you focus on running a profitable property business.
In case you have any queries or want specialist advice on "Landlord record-keeping", kindly call us on 03330886686, or you can also e-mail us at email@example.com.
Disclaimer :-"This article was correct at the date of publication. It is intended for general purposes only and does not constitute legal or professional advice. Independent professional advice should be sought before proceeding with any transaction".