Aside from the fact that scrutinising costs will enable you to reduce business expenditure, there is another excellent reason for keeping a very close eye on where your money is going.
Tracking income and expenditure is necessary from a tax perspective. When the time comes to submit your annual tax return, you will need to itemise all of your property expenses and income so your tax liability can be calculated.
The good thing about business expenses is that they can be used to off-set any tax you owe, but if you are highly disorganised in your record keeping there is a very real chance that expenditure won’t be accounted for and therefore not deducted from income. So the more legitimate business expenses you track and record, the lower your tax liability will be. You do need to be careful, however, that you know the difference between revenue expenses and capital expenses – capital expenses cannot be deducted against rental income. If in doubt about this, or any other aspect of landlord taxation, consult a property tax expert for advice.
If your business is relatively new or you have spent a lot of money renovating one of your properties, there may come a point where expenditure cancels out any rental profits made and your business records a loss....
Obviously this means your tax bill will be nil, which is fantastic, but don’t forget that any losses can also be carried forward and used to offset your tax liability moving forward.
Tracking and registering your rental losses is good business practice. If you fail to record any losses you make and don’t register them, you will end up paying HMRC more tax that you need to – Ouch!
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