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How to prepare for your tax return

Whether you have a portfolio of properties or are a reluctant landlord you're running a business. And if you're running a business you need to be filing a tax return. If you haven't already done so, now is the time to get everything in order. Whether you file your own return or use an accountant the deadline is looming.

When do I need to file my tax return?

January 31, 2019 is the deadline for filing an online return for the 2017/2018 tax year. The preceding October was the deadline for paper returns. To submit an online return, you must first register for self-assessment. The process is different depending on if you're a sole trader or have registered a company. But you can find out more about registering for self-assessment here.

Remember there are penalties if you don't file your return on time. Make sure you beat the deadline or you'll find yourself paying more than just the tax you owe.

DIY or accountant?

It's a decision every self-employed person has to make. Do you prepare and submit your own tax return or do you contract an accountant to do it for you? There are pros and cons to each approach.

The biggest benefit to doing your own books and filing your own return is the money you save on paying an accountant. And if you know your way around the tax laws it can make sense to file your own tax return.

But, and it's a big but, if you don't know what you're doing filing your own return could be very much a false economy. You could lose money by not claiming everything you're entitled to and end up paying too much tax. Errors or mistakes on a tax return can also result in financial penalties.

The tax laws are complex. Especially for private landlords. An accountant knows the laws, knows the breaks and knows how to (lawfully) minimise their clients' tax liability. This is another reason you should seriously consider approaching an accountant. And of course, accountant's fees are tax deductible. So, it's worth thinking about.

But whether you engage an accountant or submit your own return there's a lot of preparation to do before filing.

It's all in the preparation

Hopefully you're one of those very organised people who file away invoices as soon as they're paid and keep bank statements neatly stored in a binder. More probably you'd like to be that person but aren't. Hopefully though you're the exception to the rule. But if not start preparing for your tax return now. Get all your paperwork sorted and neatly filed. Or make sure your electronic files are all in folders on your PC. It makes it much easier to complete your tax return when you have all your records to hand.

You need to find all your receipts, statements and bills. Get them organised so you, or your accountant, are able to calculate your tax liability. It may take some time. But it's worth the effort.

By the way. If you don't like paperwork HMRC are coming to your rescue. Making Tax Digital (MTD) is a new government initiative. The scheme demands you must digitise your records using approved software. MTD is due to be introduced in April 2020. This will affect some private landlords so ask your accountant or financial advisor for more information.

Completing your tax return

The point of filing a tax return is to calculate your taxable profits. And how much of those profits you're going to have to pay in tax. Of course, if you don't make a profit it's unlikely, you'll have any tax liability. It's also unlikely you'll be in business much longer so hopefully you've made a nice profit.

You calculate your profit by deducting your allowable expenses from your rental income. You pay tax on the balance. How much tax will depend on your personal allowances.

Calculating your income

This is the easy(ish) part. Any rent received is your income. But you must also include any other revenue your business has generated. This could include service fees or any other charges you levy on your tenants.

Allowable expenses

You can offset some expenses against your income. Allowable expenses include:

  • Repairs and maintenance costs.
  • Insurance premiums.
  • Professionals' fees including legal and accountancy.
  • Letting agent's fees.
  • Marketing costs.
  • Stationary, phone calls etc.
  • Mileage allowance (currently 45p per mile up to 10,000 miles. 25p per mile thereafter).
  • Other deductibles

    This is where it can get confusing. The rules are always changing. An example of this is the phasing out of the wear and tear allowance. Replacement domestic item relief has taken its place. This relief allows you to claim for the cost of replacing a like for like item. A new fridge to replace an old appliance for example. If you replace the original item with a different type, a fridge freezer for a fridge perhaps, you can only claim full relief on the cost of replacing with a fridge.

    The changes to mortgage tax relief have hit landlords hard. A tax credit will replace it by 2020. This will affect you differently if you are a sole trader or have registered a company. But until 2020 tax relief can still be claimed but on a diminishing scale.

    It's because the rules regarding private landlords and income tax are so complex it's highly recommended you seek the advice of an accountant or financial advisor before you file your tax return.

    What happens when I submit my tax return?

    When you file your return online your liability is calculated as you go. You'll know exactly what you owe by the end of the process. And if HMRC owe you money you'll know that too. Once you've submitted your return online, you'll get an instant confirmation. This means you're all done for another year.

    Always seek taxation advice from a professional advisor or accountant.

    Private landlords can find tenants fast by listing their property with MakeUrMove the online letting platform bringing landlords and tenants together.

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