How landlords can get ready for the new tax year
The turn of the New Year isn't always about setting goals or making resolutions. And pinning a calendar to the wall isn’t the only thing which happens in January. It's also the deadline for electronic tax returns. But also, an opportunity for all private landlords to prepare for their new tax year. It's a chance for you to ensure your paperwork and accounts are in order. Here's some tips on how to get ready for the new tax year:
Sort out those receipts
When you get a business receipt what happens to it? If you're like many self-employed people it'll end up in a drawer. You do of course have every intention of filing them properly. At some point. But there's no time like the present.
Take those receipts out of the drawer. Empty the glove box in the car and check your wallet/purse for any old paid invoices. Sort them into date order and pop them into a folder. Use the folder to store any new receipts. Don't relapse into filing them into the kitchen drawer.
Bank on putting things in order
Do you still receive bank statements through the post? If you do, they probably end up in the drawer next to your receipts. But now is the time to organise them neatly into a file. It’s the same if you bank online. Print out your statements and file them away. Your bookkeeper or accountant will need to see them. Speaking of which:
Consider an accountant
If you don't already have an accountant consider getting one. Although an accountant isn't cheap a good one will save you far more than you pay them. The tax laws which apply to private landlords are complex and always changing. It's almost impossible for an untrained person to know the ins and outs of the tax laws. And to keep up with the changes in legislation.
But it's an accountant's job to know the fine detail of the tax laws and how to ensure their client's tax liability is as low as possible. However, don't just choose the first accountant you find. Make sure they’ve dealt with landlords before. Ask them for references from current property-owning clients. Perhaps the ideal scenario would be to find an accountant who also has a portfolio of properties.
A good accountant will save you paying too much tax. But will also give you peace of mind. Knowing the taxman won't come calling removes a lot of stress from running a business. And don't forget. Anything you pay your accountant is a deductible expense. So, their expertise is really costing you nothing.
Set up a separate bank account
A separate bank account for your rental income is essential. You really should have already set one up. But if you haven't this is the time to do so. Keeping your business income and expenses separate from your personal finances makes it much easier to sort out your taxes.
Even if you're a start-up or reluctant landlord you must keep your business transactions separate. A business account may cost you some additional fees but it makes your finances much easier to manage. And will save you a nasty headache if the tax authorities want to audit your business finances.
Limited or not?
As a private landlord when you run a business you have a choice of whether to be a sole trader or incorporate a company. Setting up a limited company can have advantages for private landlords. Mainly in reduced personal taxes. But they can also involve extra expense in other areas.
The decision to be a limited company or not is a complex one. It's one you should make after consulting your accountant or other tax expert.
Making Tax Digital
As a private landlord you need to be aware of MTD. Making Tax Digital is a government initiative which will eventually see the end of self-assessment. These changes will affect private landlords.
The goal of MTD is to make the tax system fully digital. For private landlords this means keeping digital records using software. Although plans for the roll out of MTD are fluid at the moment it appears it may only be obligatory for those landlords whose turnover is over £85,000. For landlords with rental income below £85,000 MTD will be optional. April 2020 is the current target date for the introduction of MTD for landlords.
However, it pays to be aware of the intending changes. Again, this is something your accountant will be able to advise you on.
Whatever your other January resolutions making sure you're prepared for the new tax year should be high on your list. And it's one New Year resolution well worth keeping.
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