Declaring rental income/expenses

It is the law that all rental income is declared to the Inland Revenue every year. This has to be done on time or you will get fined. You must declare your rental income even if you have only one property. You can prepare rental accounts yourself but I would advise getting an accountant to do this for you. They are reasonably priced and in my experience can legitimately save you more money than they cost. I have used my accountant for many years now. Even though I used to live near London and now live near Manchester I have kept the same accountant (who lives near London). The reason for this is that if an accountant does your returns for several years then he builds up a comprehensive picture of your finances and if (God forbid!) you were ever to be investigated by the Inland Revenue then your accountant would have everything that he needs.

Over time I have created a spreadsheet for my accountant that summarises all the areas of expenses he needs – i.e. mortgage interest, repairs, letting agent fees etc… I present my accountant with an Excel spreadsheet in the format he wants and then visit him to discuss the accounts and to finalise the return. A lettings return is normally part of a full individual tax return. You can also buy custom made lettings software. I haven’t used one of these myself but I do have a friend who is using one and finding it very useful – particularly in terms of reporting and analysis.

Many expenses are deductable against tax for lettings. Items such as mortgage interest (but not the repayment part), repairs, letting agents fees, stationary, travel (in relation to the lettings business) are all deductable against tax (and many more items). I won’t list all of the expenses for lettings but it is important to try and keep on top of it during the year. I have once tried to cram a whole year’s income and expenditure into a day’s preparation but this was a nightmare and led to some mistakes which actually cost me money (i.e. expenses missed that I could have claimed). Try and do your rental accounts/paperwork at least every 2 weeks and you will find that it is much easier to manage to do your annual accounts. Although admin/paperwork for lettings can be tedious I do get a feeling of accomplishment every time I get up to date. The other really important point about keeping on top of your rental accounts is to make sure that your rents are up to date and to chase your letting agent if they aren’t. Some letting agents will just let late rent accumulate unless you do something about it.

So in summary, I know it can be tedious to do your accounts but get it done, keep it up to date and you will be managing your property/portfolio much more effectively than if you don’t do this.