There is a simple rule if you have income you have to report it to HMRC and if you have profits you should pay taxes. If you fail to do so on time you have to pay heavy penalties. There is simply no escape. So for example, if you are a landlord you will have to fill in self- assessment tax return annually unless you are managing the property through a limited company. All the expenses, income, profit should be reported to HMRC. If you are a landlord and need help in filling the self-assessment tax return you can contact Taxaccolega and we can help you with that.
However, there are ways in which you can reduce your tax bill. Some of them are discussed below.
Claiming Allowable expenses: There are certain expenses which can be deducted from the taxable profit thereby reducing the tax liability. If you fill in self-assessment annually you can claim these expenses in the annual return however, in case you manage your property through a limited company you will be able to show these expenses in the annual accounts. HMRC has provided a list of expense and they are as follow:
- Advertising costs of the property
- Telephone bills- the cost of the calls or text messages made in connection with the rental property(some people prefer to keep a separate phone for the business purpose)
- Accountancy fees
- Letting Agents fees
- Cleaning costs of the property
- Other service costs
- Any insurance costs (such as building or content insurance)
- General repair and maintenance cost
- Costs incurred in travelling to and fro to the rental property for the purpose of the business
- Any stationery expenses
- Council tax bills or any utility bills if they are paid by the landlord according to the rental agreement.
Work from home expense:
An allowance of £4 per week that is £208 per annum which can be claimed by the landlord as an allowable expense. He is considered to be `working from home` for tax purpose.
Rental losses can be adjusted against the Rental Income:
If you have any losses in the previous tax year and you have not realised those losses, you can carry those losses forward and adjust against the rental income. The losses will reduce the profits and therefore tax liability. If you think you might have had losses in the previous years and you did not fill the self-assessment you can contact Taxaccolega and we can sort it out for you.
Incorporating a Company:
If you incorporate a company you might be able to reduce your tax liability because of the following:
Finance Cost:
If you manage your property through a company you can deduct the interest payments on the mortgage as an expense in your annual accounts however, this is no more allowed if you fill in self-assessment annual return.
Corporation tax rate:
The rate of corporation tax for the tax year 2020/ 2021 is 19%. This means if you are renting the property through a company. The company will be paying 19% on the profits generated from the rental properties. If we compare this rate with the personal tax rates, which will be applied on the rental income, this is definitely less.
For more information on filling the tax return and paying the tax visit our website here.
Letting Expense:
If your rental property is empty for a certain period of time and still you are paying utility bills and council taxes or spending some money maintaining it you can claim these expenses. These expenses can be deducted when coming to the profit figure.
Avoiding penalties:
Last but not the least you should submit all your returns on time in order to avoid penalties. If you are late in submitting your returns or annual accounts you will end up paying extra costs in addition to the taxes. To know more about fines and penalties click here.
For more advice tailored to your special circumstances you can contact us at 020 8127 0728. We can also help you with transferring your property to a limited company and explain the reliefs available to you. If you have any enquiry related to that please call us or fill in the contact form here and we will get back to you.