Broadly speaking, in calculating rental  profits a taxpayer can deduct business expenses so long as they are:

• incurred wholly and exclusively for business  (rental) purposes; and

• are not of a capital nature.

It is not possible to set out all the expenses that are allowable for tax purposes in all circumstances but some idea of the main types of expenses that are likely to arise in a rental business and also some idea of what can or cannot usually be claimed as a deduction in calculating rental business profits are covered in this post.

For an expense to qualify the business purpose must be the sole purpose. A non-business or private purpose prevents any deduction from business profits where there is no objective yardstick by which any business element can be distinguished from the non-business element.

Examples of deductible expenses include:

• Repairs and maintenance;

• Interest paid;

• Capital allowances;

• Wear and tear or renewals allowance;

• Travelling expenses;

• Legal and professional fees;

• Managing agent’s fees;

• Insurance;

• Rents and ground rents paid;

• Lighting, heating, cleaning, gardening, security, caretaking etc.;

• Advertising;

• Accountancy fees for preparing the accounts and agreeing taxation liabilities;

• Council tax, business rates and water rates – if paid by the landlord;

• Bad debts and the cost of pursuing debts;

• Staff costs, including statutory redundancy pay and training.

Repairs and maintenance

• Expenditure on repairs is deductible, including ordinary repairs and decorating before the building is first let;

• Expenditure is not deductible for the cost of alterations and improvements, or the cost of bringing a newly bought building into a fit state for letting. These are capital expenses;

• Expenditure reimbursed by insurance is not deductible.

Interest

Interest payable for the purpose of the property letting business can be deducted in the accounts. This includes interest on a loan to buy or improve the property or to fund repairs.

Travelling expenses

• Travelling expenses are allowed if they satisfy the ‘wholly and exclusively’ rule. For example, the costs of travelling, solely for the purpose of the business, are allowed between let properties, or to a let property from the place where the rental business is administered;

• Travelling expenses are not allowed if private purposes are included in the travel, such as personal shopping or family visits;

• Where the business is administered from the landlord’s home, the cost of travelling from there to the properties is unlikely to be allowed if the home is far away from the properties, as the need for the journey is considered to be dictated by the personal preference of the landlord to live in a particular place, rather than the needs of the property business.

Legal and professional fees

• Fees on the purchase of a property or for the first letting agreement are treated as capital expenses and are not tax-deductible, if they are for a period of more than a year;

• Fees for a letting agreement of less than a year, or for renewing a lease for less than 50 years, are deductible;

• Other professional fees, which are normally allowed, are those for insurance valuations, and for evicting an unsatisfactory tenant in order to re-let the property.

Income from property is affected by a large number of tax rules - the reasons for this are the variety of uses to which property can be put, and the different ways in which income and profits arising from property can be taxed. Substantial profits can be made on single transactions, making tax planning important. The large volume of tax legislation affecting property means that the precise way in which a transaction is structured can significantly affect the tax payable.

Please contact us to help you with your tax planning and for completing your tax returns.

As a taxpayer, you need to keep records to support any of the entries in your Personal Tax Return.

If you’re in business or receive income from property renting, you’ll have to keep the back-up records for five years and ten months (in other words, 70 months) after the end of the tax year when the income was received.

If you don’t have business or rental income, the period of record-retention is reduced to 22 months.

From April 1996:

• the law requires you to keep records of information received from your employer and other records so that you can complete a tax return fully and accurately if you are asked to do so;

• employers must provide their employees with certain information that they need to help them fill in their tax returns (if they get one).

You should keep the following information you receive from your employer:

• P45 which contains details about your pay and tax. If you leave your job during the tax year, your employer will give you form P45. You should keep part 1A of this form.

• P60 containing details about your pay and tax. Your employer should give you this by 31 May after the end of the tax year (if you were in your job at 5 April).

• Details of your taxable expenses and benefits in kind (sometimes known as ‘P11D details’). Your employer should give you these by 6 July after the end of the tax year (if you were in your job at 5 April).

• Your employer may also give you information about expenses and benefits in kind you received which were included in a ‘dispensation’ or ‘PAYE Settlement Agreement’. These do not need to be included on your tax return.

Please click here for our core taxation service.

Please  contact us for further help.

Bare All and Stand Out

To stand out from your competition and give your business real credibility get testimonials from your customers and publicise these on your website. Potential customers  are savvy  they will not be taken in by made up testimonials or testimonials that are not from an independent source. To give your testimonials credibility you need to ensure you do not only show the good, but also the bad and the ugly.

Every time I read 100% satisfaction testimonials, I move on to someone else who is honest enough to show me that they are not perfect. Likes of Amazon are excellent examples where they do not remove critical testimonials about them. Furthermore, this is a great way to ensure you are always on  your guard to make sure that you are doing everything to provide  outstanding customer service.

How to do it?

Sign up with FreeIndex business listing directory.  Click  here to do this . You can advertise your business for free in just a short space of time but the best thing about FreeIndex  is that it ranks businesses in each sector by the number of reviews they have received from their customers.

For example they are 1362  listed businesses in the “accountants” category. In this category with just 19  reviews we are listed as  number 1 in the rankings.

Once you have registered on FreeIndex, you can send your customers a link to leave you a testimonial. They independently rate you against the following criteria:

• Value for money
• Customer service
• Quality

FreeIndex have measures in place to ensure that the reviews system is not abused.

The way to put these testimonials on your website is by copying a piece of code from FreeIndex  and pasting these code on your website. This  will show the latest reviews you have received on the FreeIndex site, therefore acting as a constantly updating testimonial list. Click here for an example of this.

Please note I am not connected to FreeIndex,  apart from being listed on their website and acting as their Finance and Accounting Expert for which there is no pay.

Where as an employee your company van is made available to you for private use,  you will only be taxed on it if you actually use the van for private journeys.  Travelling from home to the main place work and vice versa are allowed without these being classed as private journeys.  Furthermore, you are allowed insignificant private use without any tax implications.  Examples of these include stopping at a newsagent on the way to work or calling at the dentist on your way home. If these circumstances do apply to you then it would be best:

• To keep a mileage record on the use of your van

• Sign an agreement with your employer saying that the van is only to be used for business and insignificant private use and for travelling between your home and the main place of work.

Where the company van is available for private use and you use it for private journeys, this will raise a taxable benefit in kind of £3,000 per annum. For a basic rate tax payer, this would result in £600 tax bill per year. Further, if you are also allowed free or subsidised fuel, this will result in additional benefit in kind of £500 per annum, resulting in a further tax bill of £100 per year if you are a basic rate tax payer.

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A few people are lucky enough not to have the burden of completing a Self Assessment tax  form every year. The Taxman may still keep an eye on you now and then to make sure you are paying the right amount of tax. He will do this by asking you to complete a form called 810.

The taxman  may issue  form 810 every three years. on some ocassions he may issue it more frequently. If you are issued this form, there is no penalty for not filling the form.  However, if more tax is due to the Taxman you may end up with interset to pay plus penalties for late payment. By not completing the form you could lose tax refund that may be due to you.  So it is good practice to keep HMRC informed of change in your income.  Where you do not complete the annual Self Assement  form, form 810 is a good way to keep the taxman informed.

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Tax Centre for tax help sheets.