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Rental Accounting

6 Tips for Better and More Accurate Rental Accounts

Unless you’re a professional accountant or an experienced financial pro, managing your rental accounts for your buy to let properties can be overwhelming, it’s easy to get things wrong, make a mess of it, and fixing these mistakes can be both time consuming and stressful.

However, as a landlord and property investor, it is your responsibility to make sure that you remain compliant with the rules and regulations regarding the management of your property and to keep careful records for the HMRC.

On top of this, if you want to grow your portfolio and achieve your long term financial goals using property as an investment vehicle, then you need to know your numbers inside and out. You need to know where you’re spending money, how much income you’re bringing in, and which tax bracket you fall into. You need to know how you can make improvements to your cash flow and when to sell a property.

To do this you need accurate financial data. With this data paired with the right tools, you can make financial projections you can gain nuanced insights into your portfolio finances to not only increase profitability but to approach lenders and scale your business.

In this article, we take a look at six top rental accounting tips to help you keep your finances organised.

1. Separate your finances. 

The very first step to operating a successful rental is to ensure that you have that you are set up professionally. You should not be commingling your personal funds with your rental income funds.

Landlords and investors need to set up a separate bank account for their business-related operating expenses and income. When it comes tax time, this will make things far more simple. Instead of having to scroll through thousands of small potentially unrelated personal transactions you can instead look at your business account and know with some confidence that all of the transactions are related to your business in some way or another.

2. Track expenses in real-time 

One of the key issues that landlords encounter keeping their rental accounts up to date is missed expenses and lost receipts. Putting off your accounts to the end of the year results in a massive end of year catch up task, where you need to manually go through printed bank statements and paper receipts. This opens landlords up to costly errors in their accounting and is immensely time-consuming.

Thankfully, there is a better way. By tracking your income expenses in real-time with a system like Landlord Studio you remove this large manual end of year task. Instead, digitise your receipt at the point of sale, update and reconcile your accounts on the go, and never miss an expense again.

With MTD coming into play as early as 2024 keeping digital records become not only a best practice but a legal requirement. You can learn more about MTD here.

rental accounts and tax planning

3. Store supporting documents with your rental accounts. 

When you set up your books, whether this is Excel, using software like Xero, or using a landlord specific software like Landlord Studio, you need to ensure that you have a system in place for storing all required supporting documents. For example, invoices and receipts. The HMRC requires that you keep these documents for at least 5 years.

However, keeping vast swathes of paper documents and receipts is not a practical solution. It takes up a huge amount of space, receipts fade over time, they’re easily lost, and hard to organise.

With Landlord studio, we make it as easy as possible. You can store all of your important documentation such as property inventories, your energy performance certificates, your EICR, gas safety certificate, tenancy agreements, and more. On top of this, you can easily digitise receipts using our mobile app in real-time and attach the receipt to the relevant expense so that you can easily find them later.

All of these documents are stored in a secure cloud server, organised by property and searchable within the system so you can find them at any point in time, on any device, whenever you need them.

4. Reconcile your rental accounts with your bank transactions 

Open banking innovations have made it easy for businesses to access their transactions using software like Landlord Studio. Instead of printing off pages of bank statements and entering transaction details manually, simply go into the Landlord Studio app, open bank feeds, and click on the expense you want to reconcile. This is both more efficient and also removes the potential for human error.

At the end of the year, simply run your reports share them with your accountant, and fill out your self-assessment.

5. Calculate your taxable income and allowable expenses 

Accurately tracking your taxable income and allowable expenses throughout the tax year is the only way to ensure you don’t get hit by a big surprise tax bill at the end of the year.

Your rental accounting system should be designed with this in mind and should allow you to track your income and expenses on a month by month, quarterly, and yearly basis so that you can see your income, track your allowable expenses and calculate your taxable net operating income for tax time.

When determining how much tax on rental income you need to pay you will also need to take into account income from other sources such as your day job. For example, if you made £40,000 salary, and £18,000 in rental income, that would be a total taxable income of £58,000, with a portion of this income falling into a higher rate tax bracket.

6. Using the right tools for your rental accounts 

Getting your rental accounts under control can seem like a daunting task, especially as your portfolio grows and you purchase more lets. Thankfully, there are plenty of software on the market that will do most of the heavy lifting for you.

Landlord Studio, can help with everything from income and expense tracking and reporting to managing tenant communications and setting reminders for important events such as inspections, and safety certificate renewals.

Our powerful reporting functionality is perfect for analysing your financials on a regular basis and running end of year tax reports like a profit and loss statement and income expense statements.

Final Words 

By combining the simple tips we’ve laid out in this article, landlords can maximise their deductions and reduce their overheads.

On a final note, everyone’s situation and goals are different. These are broad tips to help you keep efficient rental accounts. It is advisable to seek professional financial advice and speak with a licenced accountant to ensure that your books are set up properly and to help you achieve your long term financial goals whilst staying compliant with strict tax and property investing regulations.

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