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Best bookkeeping practices for landlords for MTD ITSA

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The year 2023 is touted to be crucial for the self-employed and landlords in the UK to get their finances in order because of the impending April 2024 Making Tax Digital Income Tax Self Assessment (MTD ITSA) deadline. Digital record-keeping is a critical aspect of MTD, which landlords should take seriously.
 
Errors in bookkeeping can make it challenging for you to monitor your profits and keep a finger on your expenses. Whether you rent one or multiple commercial or residential properties, you must maintain accurate and up-to-date records of your income and expenses, complying with HMRC requirements.
 
Let us dive deep into how you, a landlord, get your books of accounts ship-shape. But first, let us get the basics out of the way:

What is MTD ITSA, and how does it affect landlords?

Anyone who is a landlord with a total property income above £10,000 per year is mandated into MTD for ITSA from 6 April 2024. Please note that MTD applies to commercial property, residential property, furnished holiday lettings, and any non-UK property you are earning rent from. Here are three aspects of MTD ITSA that every landlord must remember:

1. Digital record-keeping

Software must be used for keeping accounting records relating to sole proprietorship and rental income that you report as income tax. For instance, you must digitally save the data from any invoices you send or receive.
 
HMRC has not yet provided details, but it may also be necessary to digitally record additional accounting information specific to landlords. To discuss what MTD ITSA means for landlords, contact us!

2. Reports and updates

You must submit quarterly updates to HMRC. Depending on the software you select, these will likely be entirely automated, so that task should not be too challenging. Nonetheless, you can take the help of a landlord accountant if you get stuck.
 
Additionally, you must provide an end-of-period statement (EOPS) for your rental income by 31 January each year (plus individual EOPS for any other trades you might operate). You must also submit a final declaration for all of your revenue by the same date. An MTD-compliant software must be used to provide everything.
 
You will continue filing a Self Assessment tax return if your rental income (or sole trader and rental income combined) is £10,000 or less. If you have to disclose income from investments, savings or pensions, for instance, you may need to continue taking the Self Assessment route in addition to MTD ITSA – depending on your situation.

3. Specific circumstances

It is also important to remember that if you are a landlord registered as an LLC, you need to keep sending your limited company accounts and corporation tax to HMRC and Companies House. Alternatively, if you co-own a property with someone else, that person must also register for MTD for landlord rental income tax return and report their income digitally.

Why maintaining financial records is vital for landlords

Two things hold true for you if you rent out a privately-owned property:
 
  • You are a landlord, even if you do not think you are.
  • You likely have to pay income tax on the rent you receive.
This is why maintaining proper financial records is a critical practice. HMRC says 700,000 landlords either do not pay or do not pay enough taxes. Do you want to be in the bad books of the taxman? No, right? 
 
The taxes must also be paid on additional payments received for furniture use or services such as heating, maintenance, and hallway cleaning. However, did you know that expenses and allowances can be deducted from income?
 
Yes, that is right! What is left with you after the deduction is the profit, which is taxable. Note that you cannot claim expenses if your rental revenue is less than £1,000.
 
Most private landlords use the Self Assessment system to calculate and pay their taxes, which has a special provision for property incomes, expenses related to income, and exemptions.

Why landlords need to keep financial records

If you are a small landlord, you may find keeping financial records a tad tedious. After all – you get a steady income each month, which you rightfully mention in your Self Assessment return in January annually. Fair enough! Umm…no. You still need to invest time and effort in accurate financial record-keeping. Here is why:
 
  • You could pay for a new fridge for your tenants or to do some basic repairs in the house. If the amount is minimal – you may even forget to note them. However, you can offset them so they can minimise your tax bill.
  • Paying taxes on rental income is a fundamental part of the Self Assessment rules.
  • Private landlords can claim relief on finance costs at the basic rate of income tax of 20%. This can reduce the amount of tax you pay – depending on your personal circumstances and expenses.

Which financial records do landlords need to keep

If you are renting out a property, HMRC says you have to keep the following financial records:

1. Property expenses

If you want to claim for any allowable expenses through Self Assessment, keep track of all the money you spend and keep the receipts and bills from the vendors.

2. Dates you rented a property

Stay on top of the dates on which you let out your property.

3. Income received from renting out your property

Additionally, track all the money you make from renting out each of your properties. This also includes any extra money you earn from house maintenance or minor repair work for a fee.

Can an accountant help you with your bookkeeping?  

Hiring accountants with landlord expertise like Golding Accountants, to oversee bookkeeping can save landlords time and worry.  For starters, we know legislative changes that may affect you and can communicate the same properly. We can also update any processes or tax reporting information as required by the change in the regulations.
 
We assist landlords in claiming expenses against taxable rental revenue using their bookkeeping data. For instance, you can deduct the wages of cleaners and/or gardeners from the rental income. We can save you time by evaluating which expenses can be claimed.
 
Most importantly, we will always keep your books of accounts up to date and provide you with helpful information on their profit and loss. With a specialist accountant, it is easier to determine your financial status, which affects your business decisions.
Over to you

Our landlord accountants are here to assure you do not overpay taxes, meet all deadlines, and can take advantage of the many tax-saving strategies offered by the government. Contact us today!

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