Record keeping is an onerous but essential part of running a business. Whether you manage one property or 50, you must keep adequate records of your business transactions. If you don’t, you could be in for a nasty shock one day soon…
Why it’s Important for Landlords to Keep Records
Before the age of computing (and even for a while after) it was traditional to find a tidy tin or box to keep all your receipts in and to save every business related scrap of paper you could find. It was messy, difficult to reconcile and made tax returns much more of a chore than they needed to be.
Hopefully, your current system is a lot more evolved than this, if it isn’t though now is a good time to start bringing your record-keeping into the digital era. Especially with Making Tax Digital on the horizon.
Read on for some useful tips!
Essential Records all Landlords Must Keep
- Rental and deposit payments, whether received, retained or returned.
- Any other income, for example, if you charge a tenant for maintenance or gardening services, the additional money must be recorded, and records kept of each payment
- Details of each tenancy, including start and finish
- Supplier payments, such as receipts for gardening, carpet cleaning, electrical work carried out, etc.
How Long Must Records be Kept?
Landlords are advised to keep records for six full years. Be aware that in extreme circumstances HMRC can ask to see records as far back as 20 years, usually if they suspect tax evasion on your part. If you’ve made an innocent error they are unlikely to look back further than four years. In the case of careless errors HMRC may want to see records from the last six years.
Important Information to Record About Each Transaction
Essential information about every item of expenditure and income must be recorded. This includes the:
- Date of the transaction
- Company or person the payment was made to or received from
- VAT element
You must record the total amount of VAT for each supply, so if you have an invoice with supplies charged at different rates of VAT, you must record them as separate amounts, rather than recording the invoices as one total amount.
Making Tax Digital
Making Tax Digital for VAT came into effect this year. VAT registered businesses in England and Wales must now submit their VAT returns using HMRC’s MTD online system.
Records must be kept up to date and landlords have a statutory obligation to maintain adequate records for their lettings business. MTD for VAT requires that landlords keep digital records of all expenses incurred and income received.
HMRC Record Keeping Requirements for VAT Registered Landlords
There was a time when paper records were enough, but requirements are different these days and digital is the way forward. The requirements of MTD state that some records must be kept in a digital format. This information can be viewed in full in the government’s VT notice 700/22, which you can read here, but the key records that must be kept digitally are:
- Your VAT number
- Your business name
- Your business address
- The accounting scheme you use
- Transaction data
Landlords using the flat-rate VAT scheme don’t have to record details of their purchases unless they fall under capital expenditure and you want to claim input tax. Small purchases costing less than £50 can be entered as one amount up to a total of £500.
Penalties for Non-compliance
Because it’s early days and MTD for VAT has only just been introduced, HMRC has said it will not penalise businesses and individuals who don’t comply with the record-keeping rules. However, this period of grace will not last forever. Put your house in order as soon as possible, to avoid any potential penalties. By showing that you are making an effort to do things right, you can avoid any problems. If HMRC thinks you are deliberately sticking your head in the sand and refusing to comply, it can and will issue penalties.
Non-VAT Registered Landlords
The majority of landlords are not VAT registered because their income doesn’t meet the £83,000 threshold. Making Tax Digital for income tax and corporation tax are not expected to come into effect before 2023, but you still need to prepare for things to go digital.
Use this time to devise a solid record-keeping system. If there are holes in your current records, plug them. Ask for copies of bank statements and supplier invoices. Check you have copies of receipts. Make sure your records of rent payments are accurate and up to date.
Have files for each property so it is easy to track down records. Look ahead and make sure your records are digital where possible; it won’t be long before MTD for income tax and corporation tax come into effect.
Maintaining digital copies of receipts is sensible. If you don’t use landlord software, take a photo of receipts and store the images in an online drive. That way, it won’t matter if your receipt goes astray.
Don’t forget to keep records of any personal assets you use in your property lettings business.
Have a System in Place
Have a system in place to record all income and expenditure as it occurs. If you are not already using a cloud-based landlord software solution, now is the time to looking into this.
Landlord Vision lets you track your expenses for each property. You can record payments and partial payments and thanks to our mobile app, small payments won’t slip through the net. The software allows you to keep accurate records, whether you use the Cash Basis or Accruals Basis, so HMRC is happy and doing tax returns is fast and stress free.
Once you are on the right track, it should be easy to maintain accurate records. It’s not just essential from a compliance perspective either. Keeping accurate and organised records makes it easier at year-end. You won’t forget to claim for small items of expenditure and end up paying more tax than you need to. And who wants to do that?
Speak to your accountant if you need any more information on record-keeping or you are not sure how MTD affects your landlord business. They can offer you personalised advice depending on the exact nature of your business.
Does your record-keeping leave a lot to be desired or are you so well organised your files are colour coded and cross referenced by date, property, and celestial event? If so, we salute you!
Tell us about your record-keeping hacks. You can leave a comment below or talk to use on social media. We are always happy to hear from our fellow landlords!
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