If you’re a landlord, then you may have already read our guides to accounting and bookkeeping.
Accounting isn’t easy, and that’s why many people turn to professional teams such as Blue Rocket Accounting for help.
When it comes to landlords, there are five common mistakes made when working on finances and tax returns, and we’ve created this handy guide on just what these mistakes are, and how to stop them from occurring to you and your business.
Let’s take a look.
The Complexities of Accounting for Landlords
Accounting for landlords is a complex part of the job.
If you own several properties, keeping tracks of incomings, outgoings, and all other figures can be tough.
Not only this, but there are many different rules and systems that you must adhere to, and these are something you must keep track of.
With so much to do, it can be a time-consuming and arduous task to write up your books and ensure you are paying enough tax (and not too much).
It can be easy to try and rush your taxes, and get them done as quickly as possible, but you may be missing some opportunities to lower your payments, and may end up making errors.
If you’re a landlord, and you’re worried about doing your own accounting, here are five common mistakes to look out for.
Common Landlord Accounting and Bookkeeping Mistakes
1. Letting Your Figures Build Up
As mentioned earlier, there can be a lot for landlords to keep track of.
Being a landlord is a busy job, and the more properties and tenants you have, the more work there will be.
While it may be convenient to set a day aside once a month, this can lead to issues.
With mounds of receipts and figures to work through, it’s bound to be a stressful day as you try and keep track of everything. It also makes the chance of making mistakes much more likely.
Tracking your expenses in real-time is a much better way of keeping a constant track of what you’re spending and provides many benefits.
Firstly, you will know your financial figures at all times, and you will know that the figure is always up to date.
You will also avoid a big build up. This means instead of the job taking a day or more, it will be a simple, quick, task at the end of every day.
If you can get into the habit of tracking finances as they come and go, you’re sure to have a much smoother, more efficient, and more accurate process of recording your figures.
2. A Lack of Knowledge in Expenses and Tax-Saving Opportunities
There are many tax issues around letting property, as highlighted in this guide that we created.
If you turn a blind eye to the latest changes, you may end up sending tax returns that are completely wrong.
For example, the changes in letting relief that took place in 2020 and are listed in this blog could mean a difference of thousands of pounds on a landlord’s tax bill.
Another thing to look out for is the new method of inputting your financial records that will come into place with the Making Tax Digital scheme.
These are just a few instances of major changes that could completely change the process of inputting tax, and the financial implications of actions made by you and your business.
A landlord is an expert in running and letting a property, and should be right up to date with the latest legislation when it comes to providing safe housing, but they may sometimes not be as up to date on their tax returns.
This can be a big mistake, so find a source of news that is sure to keep you in the know, and always prepared for any changes that do arise.
This can also help save you money, as you keep track of the things that you can claim expenses for and so can be classed as tax exempt.
3. Avoiding Using Landlord Accounting Software
For a landlord who has been recording their figures manually for years, it can be hard to move to a more digital approach.
As mentioned above, your hand may be slightly forced by the Making Tax Digital scheme, but that’s not the only reason you should be ditching the ledger and moving your accounts online.
Making your accounts digital can be seen as a big step, and it may seem more complicated compared to marking everything down in a book, but this isn’t the case.
Over time, accounting software such as Xero and QuickBooks have become more and more advanced, and they should now be seen as essential when doing accounting for landlords.
The benefits are endless, but to list a few:
- They can keep hold of years of data that can be accessed in seconds with handy search functions. This makes it simple to search back through certain purchases, properties, tenants, and more.
- You have access to a wide range of reporting that can forecast your spending, provide information on where you are spending too much, and plenty more.
- Through handy dashboards across devices, you can keep track of your spending, safe in the knowledge you are only ever a few clicks away from a complete overview.
4. Overcomplicating Things
This follows on from the above point but is a point that is so important it deserves its own category.
Sorting out your tax returns can be tricky, but there are ways you can make it simpler.
If you have multiple ways of storing your receipts and figures this may get confusing. Also, if you are just using one bank account for your business and personal spending, this will also cause confusion.
The key is to keep things streamlined.
Have one bank account dedicated to your business finances, and this way you can clearly see what you have spent and received throughout the year.
When it comes to keeping receipts, get into a habit of taking images and also storing receipts in one place so you always know where they are when needed.
Having all your information in one place and easy to find will make filing and submitting your financial information much easier, and when you form a simple routine that you can use to track spending and incomings, you are sure to be able to ace your accounting.
5. Not Seeking Professional Advice
Money is everything in business, and it can be tempting to try and cut costs whenever possible.
Hiring an accountant to help advise and submit your financial returns may feel like an unnecessary expense, but the truth is completely the opposite.
An accountant can actually save you money by providing information on what payments should be exempt from tax and more.
Advice like this is invaluable when sifting through your financial figures, and you’re sure to be surprised at the amount you can save.
Not only that, but an experienced accountant will have been there and done it all before.
Any issues that may take days to fix alone can be quickly sorted by an accountant, and they will be able to inform you of all upcoming changes to legislation so you’re always on top of your taxes.
Many of the common mistakes listed above can be stopped from happening by using professional advice, from being able to point you in the right direction of software to make your bookkeeping simpler or keeping you up to date with all the information you need.
While cutting costs where you can is always a good idea, the money you spend on an accountant is sure to be worth every penny.
Landlord Accountants from Blue Rocket
If you are a landlord looking to seek advice from a professional accountant, then why not take a look at Blue Rocket Accounting.
Our professional team can help you gain control of your accounts, and ensure you are paying the right amount of tax.
Want to know more?
Get in touch with our team today for a chat about just what we can provide to your property letting business.