Bookkeeping mistakes are rife in landlord accounts because they rarely have a good understanding of how tax works.
The problem is landlords cannot track profits, pinpoint wasted money or investment yields without accurate business books.
Most landlords repeat the same basic bookkeeping mistakes –
1. Leaving accounts until the year end
The general scenario is the landlord has a bin bag full of receipts and bank statements for several properties to send off to an accountant for compiling into accounts. This chaos leads to more expensive accountancy fees and a nightmare in tracking errors.
Business books should be updated monthly.
2. Running a property business through a personal bank account
Accountants throw their hands up in horror at this – while the tax man rubs his with glee.
Not only is separating business and personal expenses a major undertaking, the landlord is inviting the tax man to look at his or her personal spending without launching a separate inquiry
3. Forgetting to reconcile
Reconciliation is simply checking off income and expenses against cash and bank account entries.
Reconciliation is a fail-safe for error checking.
Ticking off the entries show they are entered in the books, no money has gone missing and everything has been entered correctly.
4. Losing receipts
The simple equation is no record of expenditure = no tax relief on the amount spent because the landlord cannot show the money went on a business purchase.
Keep receipts for even the smallest amount as proof of expenditure
5. Keeping files
Keep three basic files –
- A correspondence file with HMRC with tax codes and proof of filing
- A capital expenses register to track expenses to set off against capital gains tax when selling a property
- A full set of business bank statements for reconciliations – this can be an electronic dump from your online banking as a spreadsheet file
Rooting out these bookkeeping mistakes will make calculating profits and tax a lot easier, while making sure every penny is claimed for business expenses.