The new tax year has begun, and with it comes an opportunity for landlords to get their financial affairs in order.
At the end of 2012 HMRC announced the launch of a new task force targeting landlords in the South East of England. Last month this task force's activities were extended across the country, in an attempt to crack down harder on landlords who misreport their profits. Landlords are therefore being encouraged to take some time to give their record keeping and tax arrangements a once over.
We have compiled some simple questions to determine whether or not you are on the right footing.
1. Are you keeping accurate records?
Accurate and comprehensive record keeping is one of the key responsibilities facing landlords and other small business owners. It is vital that you keep records of your income and expenditure - not only because you are legally obliged to do so, but because it is one of the most important ways in which you can determine the health of your business.
If you haven't already done so, you might consider investing in bookkeeping software to help you do this quickly and efficiently. There is a range of solutions available, many of which are hosted online meaning that you don't even have to install any software.
2. Have you properly declared your income?
You have a legal obligation to declare the income you derive from your rental activities. If you are concerned that you may have misreported your income, it is vital that you contact HMRC as a matter of urgency. You can make an 'amendment' up to 12 months after the deadline for the relevant tax return. If you filed your return online, you can make your amendment online too. In order to do this you need to log in, go to the page marked 'At A Glance', and then select the option to make an amendment. If you filed on paper, you simply need to post HMRC the relevant page, clearly marked 'Amendment', along with a covering letter explaining the correction. HMRC will then advise you as what steps come next.
3. Are you claiming the right allowable expenses?
Landlords are entitled to offset certain expenses against their total tax bill. These include the cost of your buildings and contents insurance, agency fees, legal and accountants' fees, mortgage interest, and miscellaneous costs incurred such as phone and internet bills. Again, your ability to claim these reductions is contingent on good record keeping.
4. Are you prepared for the business records check?
Finally, landlords should understand that they are also at risk from HRMC's controversial business records check system. Under this regime landlords and business owners receive letters from the taxman advising them that they will have to undergo a phone interview to determine whether or not they are keeping sufficient records. If you have been selected for a phone interview you should read the business records check interview questions here.