Whether you run a property business or simply let a flat to a family member, as a landlord it’s vital that you keep your property accounts accurate and up to date. In this article, we’ll outline the key information that landlords need to know in order to keep their books in shape and comply with tax law. We’ll also provide some tips for landlords on getting their property accounts in order in time for the introduction of the government’s Making Tax Digital (MTD) for Income Tax legislation. This article is for landlords who own their property themselves (i.e. unincorporated landlords), rather than those who put their property into the ownership of a limited company.
Which financial records do landlords need to keep?
If you’re letting a property, there are certain financial records that HMRC requires you to keep:
Dates on which you let a property
You should keep a record of the dates on which you let each property you own.
Income you receive from letting property
You should also keep a record of all the income you receive from letting each property you own. This includes the rent that tenants pay you, as well as any additional income you receive from services that you charge for (e.g. carrying out certain repairs or maintenance).
If you wish to claim for any allowable expenses through the Self Assessment process, you should keep a record of these expenses, along with all the relevant receipts and invoices from suppliers. You can find out more about what you can claim for in our guide to allowable expenses for landlords.
How long do landlords need to keep financial records for?
The amount of time you need to keep financial records relating to your property income depends on when you file your tax return for the tax year that the records relate to.
Tax returns filed on or before 31st January
If you are filing your tax return before the Self Assessment deadline for the tax year the records relate to, HMRC requires you to keep the records for at least 22 months after the end of the tax year. For example, if you file your 2021/22 tax return by 31st January 2023, you should keep your records until at least the end of January 2024.
Tax returns sent after 31st January
If you miss the Self Assessment deadline for the tax year that the records relate to, you should keep the records for at least 15 months after you file the tax return in question.
Important: If your rental income counts as a self-employed trade (e.g. you run a B&B), HMRC requires you to keep records for at least five years after the 31st January submission deadline for the tax year you’re filing for.
HMRC provides more information about how long you need to keep records relating to your tax return on its website. If you’re unsure how long you need to keep any of your records for, you should check with an accountant.
How to keep your property accounts in shape
Now that you know which financial records you need to keep and for how long, here are a few tips to help you keep your property accounts in great shape:
1. Get some help
If you’re feeling overwhelmed by the prospect of managing your property accounts in addition to the responsibilities of being a landlord, you may want to consider getting some help.
Accounting software should help you with both keeping your books organised and preparing for the government’s introduction of Making Tax Digital for Income Tax, which will require many individuals who earn income from property to use compatible software to keep digital records and make tax submissions to HMRC. With this in mind, we are in the process of building FreeAgent for Landlords, a brand new version of our award-winning accounting software that’s designed specifically for landlords.
In addition to using accounting software, you may also choose to work with a professional accountant or bookkeeper, who will be able to provide you with additional expertise and support.
2. Separate your business and personal bank accounts
While it might seem tempting to use your personal bank account to manage your property income and expenses, separating your personal finances from your property finances can help you maintain more accurate records. This is good practice even if you only let a single property.
3. Identify the most appropriate method of accounting
While HMRC made cash basis accounting the default method for unincorporated landlords in 2017, an accountant will be able to advise on which accounting method is most appropriate.
You can learn more about the differences between the two methods of accounting in our guide to cash basis and accruals basis accounting.
FreeAgent for Landlords: coming soon
You can find out more about FreeAgent for Landlords and sign up to register your interest to be the first to know when it’s ready. Alternatively, you can speak to an accountant about gaining early access to the software.
Disclaimer: The content included in this blog post is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should not be relied upon. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this blog post. If you don't have an accountant, take a look at our directory to find a FreeAgent Practice Partner based in your local area.