Making sure your Tax Affairs are in Order

No-one likes paying taxes, however it is something that we all have to do. Over the past few months PropertyQuoteDirect has written numerous articles concerning landlords and tax, as by paying the wrong amount you could end up with a fine or even facing prosecution. On the other hand, you could actually be paying too much tax, especially if you are not declaring certain deductibles such as letting agent fees and landlord insurance. So how can landlords make sure that their tax affairs are in order? Here, PropertyQuoteDirect provides some top tips:

Her Majesty’s Revenue and Customs (HMRC)

When it comes to tax, Her Majesty’s Revenue and Customs (more commonly known as the HMRC) are in charge. This means that as a landlord you will need to work closely with the HMRC in order to make sure you are paying the correct amount in tax and that your affairs are in order. Unfortunately, as the HMRC manages all the tax payments in the UK they can sometimes be quite difficult to get hold of, especially at certain times of the year such as when Self Assessment Tax Returns are due. Therefore, if you are confused by any aspect of paying tax you need to make sure you give yourself time to get in touch with the HMRC and discuss with them what you need to do. Luckily, the HMRC website has a large amount of information on a wide range of subjects, so you could find the answers you need online!

Income Tax

As a landlord your income is based on the amount of money your tenants pay, and as with any form of income this money is subject to tax. This is a fact that some landlords forget, especially accidental landlords who find themselves inadvertently letting out a property. Even if you only let out one property or let a property for a short amount of time you are still legally required to let the HMRC know and pay income tax on your earnings. In order to inform the HMRC that you are letting out a property you will need to fill out a Self Assessment Tax Return which will include information concerning the income you make from your properties.

Self Assessment Tax Returns

Each year the HMRC issues deadline dates for tax returns and the payment of tax, with this year’s deadlines being the 31st of October 2014 for paper tax returns, 31st January 2015 for online tax returns and 31st January 2015 for all tax payments. Filling in your tax return is not something you should take lightly so you need to make sure you give yourself plenty of time before the deadlines. By neglecting to fill out your Self Assessment, or by filling it out incorrectly, you could face a penalty of at least £100 which will increase the longer you leave it. This is why some landlords choose to hire professional accountants to take care of their taxes so that they are always certain they are paying the right amount.

Overpaying Tax

If you are letting a property as an individual you will be subjected to the personal tax rate which is 45%, however if you are letting as a company you will only have to pay 20% in tax as long as you earn less than £300,000 a year. Furthermore, as an individual you will face between 18-28% in capital gains tax, while as a company you will only have to pay 20%. Even though this sounds like a great way to save money it’s not easy to register yourself as a company and it’s likely that you will have to pay a tax bill if you do. However, if letting properties is your main occupation then it could be beneficial to you in the future, which is why it may be an idea to talk to an accountant or industry professional for more advice.

The HMRC’s slogan is “tax doesn’t have to be taxing”, however unless you plan ahead you could find yourself in trouble. Paying tax is something that we all have to do, and if you ensure that it is taken care of well before the deadline dates you shouldn’t have any issues.

Photo by Images of Money / CC BY 2.0

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