In buy to let, accounting is more than just doing the numbers. Good buy to let accounting means you can see how your business is performing, get the information you need to apply for mortgage finance, and the information you need for your tax return. But good accounting practices mean you can also get the information you need to make your business better.
In other words, the better you are at buy to let accounting the better you will be at buy to let!
But property accounting isn’t the same as accounting for an ordinary business. Here we’ll offer some tips on how the private landlord (rather than limited companies) can do better buy to let accounting.
What should buy to let accounts include?
Your income. In buy to let, there are two different types of income you need to account for. These are letting income and general trading income.
Letting income includes your rental income, any service charges you might charge tenants and any charges for utilities where you charge for these.
General trading income includes anything that is not property-related. For example, income from meals or laundry that some landlords provide.
Your expenses. This is a little more complicated in buy to let accounting as landlords have several different types of expenses. Your expenses need to be categorised correctly, including into expenses which are allowable expenses for tax and expenses which are not allowable for tax.
Allowable expenses include:
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Maintenance and repair costs.
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Staff wages or payments to others for services such as cleaning, gardening etc.
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Utility bills, Council Tax or ground rent if you pay them for your properties.
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Legal and professional fees including fees paid to letting agents.
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Landlord insurance premiums.
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Office, travel and other administrative expenses.
If some of these expenses arise only partly from your property business then you can account for part of them as an allowable expense. For example, if you have a car that you use partly for business you can claim part of those expenses (or a mileage allowance) when using it for business.
Expenses that aren’t allowable include:
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Capital expenses. That is the cost of buying, equipping or improving your property. (But you may be able to claim them against any future Capital Gains Tax.)
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Replacing domestic items such as appliances and furniture. (But you may be able to claim Replacement of Domestic Items Relief for these.)
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Mortgage interest repayments. The 2019-20 tax year was the last year mortgage interest was deductible (at 25%). A tax credit, limited to 20%, is now available instead.
Principles of good buy to let accounting
You can improve your buy to let accounting by practicing some simple principles of good accounting:
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Have a system. You might opt to do your accounts either at the end of your financial or tax year, or regularly throughout the year. Regularly throughout the year is usually better than a last minute rush.
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Use suitable property accounting software to keep your accounts.
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Keep all your invoices, bills, receipts etc. in a suitable filing system – either on paper or by scanning them.
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Allocate your income and expenses accurately, ie. between letting income and trading income and between allowable and disallowable expenses.
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Register as a landlord with HMRC if you haven’t already.
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Know the appropriate filing dates for filing your landlord tax return each year so you have a date to work towards.
Here are useful articles explaining What is a Landlord Tax Return? and How To Complete Your Landlord Tax Return.
How PaTMa helps you to be better at buy to let accounting
Most businesses today use accounting software to prepare their accounts and there are many professional accounting packages available. But buy to let is not the same as most businesses. For example, a buy to let business is unlikely to have any goods or stock for sale, while most other businesses do not receive rental payments.
This means that many standard accounting software packages are unsuitable for buy to let. They either don’t account for the differences of the property business, or they are too complicated. They are often designed for accountants and accounts staff and use specialist accounting terminology. They are very much overkill for the buy to let landlord preparing their own accounts.
For buy to let you need to use the right buy to let accounting software for the job. PaTMa Property Manager is purpose designed for the job.
Here are some of the ways PaTMa Property Manager helps you be better at buy to let accounting:
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It records and tracks all your income including your rents accurately.
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It monitors all your expenses, whether recurring like mortgage payments or one-off expenses, and allocates them to the correct category in your accounts.
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It allows you to create tasks, so you can see what has been done and what is yet to be done.
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It stores all your records securely online.
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It provides useful and valuable management and financial information. It shows your profit and loss at a glance and provides powerful portfolio insights.
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It automatically calculates the figures you need for your tax return.
Because PaTMa buy to let accounting software has been created specifically for buy to let landlords not other types of businesses (or accountants) it has everything you need but nothing you don’t. It is easy to use with no technical skills needed. It saves time since you only need to enter each piece of information once, and it helps automate the property management process. It follows best practice legal and security procedures too.
PaTMa Property Manager saves times and work and makes it easier for buy to let landlords to be better at buy to let accounting.