Accounting for landlords
When you’re a landlord and rent out one or more properties, you need to tell HMRC about your income. The best way of keeping track of your income and expenses for your tax return is by doing your accounting regularly.
We take you through what you need to know about accounting, income and tax as a landlord.
Keep the right records
As a landlord, it’s your responsibility to keep the right records. HMRC can request records related to your accounting if they do an investigation. Here’s the records you should keep:
- Rent books
- Invoices
- Receipts
- Bank statements
- Mileage for journeys that are only for business purposes
The easiest way to keep accounting records is using cloud accounting software like Bokio. You can manage your invoices and expenses in the same place as your accounting, and upload receipts, bank statements and other documents to a secure place.
Understand your taxes
You pay income tax on the profit you make from renting a property. If you have multiple properties, you pay tax on the total profit and loss.
You calculate your profit by deducting your allowable expenses from the rent you receive, which counts as your income. A simple way of calculating your profit is with automated reporting in Bokio accounting software using a Profit and loss report.
If you rent a room in your house or own holiday lettings, there are different tax rules with HMRC.
You do your income tax by submitting a Self Assessment tax return each tax year. Your Profit and loss report is a good way to prepare, so you have the details you need to fill in your tax return.
Find out more about Self Assessment tax returns in this guide
Know your allowable expenses
It’s important to know what allowable expenses you can claim on your tax return. You can only claim allowable expenses for things that are only for renting your property. These include:
- Maintenance and repairs (which don’t count as a [anchor link] capital improvement)
- Bills, like water rates, council tax, gas, electricity, ground rents and service charges
- Insurance
- Gardeners or cleaners
- Letting agent or management fees
- Accountant fees
- Advertising costs
- Vehicle costs with milage rate deductions for business use only
- Mortgage interest, but not the full mortgage payment
You aren’t able to claim expenses that aren’t solely for business use.
What are ‘capital’ improvements?
When it comes to making repairs on your property, you need to consider whether what you’re doing actually counts as a ‘capital’ improvement.
A ‘capital’ improvement refers to improving your property, for example installing new features that weren’t previously there, like an extension to the property or renovations.
It could also be upgrading a broken feature to a better one. For example, replacing a broken floor with one that is higher quality than the modern equivalent to what was there before.
Replacing 30% or more of a building component like flooring, your roof or windows also counts as a capital improvement.
Capital improvements are important not only because they aren’t allowable expenses, but also because they can increase the value of your property. Keeping track of these is important because they can be deducted from your Capital Gains Tax if you sell your property in the future.
Find out more about Capital Gains Tax
Invoice efficiently
If you request rent payments through invoicing, choosing Bokio accounting software with integrated invoicing can make your life easier. You can send invoices to your tenants, get notified if they go overdue, and simply record payments in your accounting.
If you don’t invoice your tenants and instead use methods like direct debit to collect payments, or your agency takes care of it for you don’t worry. You can record the money in your accounting using our smart bookkeeping templates for rental income.
Accounting with Bokio
Bokio bookkeeping, invoicing and expenses software has everything you need to manage your business finances in one place. With Bokio you can prepare for your Self Assessment tax return, submit automated Making Tax Digital VAT Returns and keep the right financial records. If you need an extra hand, we can help you find an accountant to work with.
Accounting is kept simple with Bokio, so you have more time to spend managing your business.
This article was updated July 2022.
