If you are a new landlord or simply struggle with the complexities of understanding bookkeeping, you may find it difficult to know how best to record your financial information. Bookkeeping requires strict accuracy and reliability, therefore knowing exactly what is required from your bookkeeping is essential. ARB Accountants are here to explain what bookkeeping best practice for landlords is, including what bookkeeping records a landlord should keep.
So, what is bookkeeping best practice for landlords? Landlords should start by separating personal and business accounts. Then, separate accounts need to be set up for each property so you can clearly record and refer back to any income and expenses. Choosing between the accrual or cash accounting method is also important for bookkeeping best practice.
Keep reading to learn more about how an accountant can help a landlord with bookkeeping, including saving money through claiming against income tax.
What is Bookkeeping Best Practice for Landlords?
When managing a portfolio of rental properties, landlords need to ensure that they have accurate bookkeeping records in order to manage their cash flow effectively. From inevitable property maintenance fees to rental income taxes, there are many expenditures that will affect the health of your cash flow. Therefore, learning how to maintain bookkeeping best practices is extremely helpful. Below we have detailed the key steps to maintaining bookkeeping best practice for landlords.
Create Accounts for Each Property:
One of the most basic pieces of advice we can provide when starting out as a landlord is to create bank accounts for each property. This is important for bookkeeping best practice because it will help with the overall organisation of your income and expenditure. What’s more, as a landlord you will have to submit a self-assessment to HMRC so having a clear record of your finances from rental income is very important. If you are interested in learning more about self-assessment, take a look at our recent blog.
Decide How to Record Income and Expenses:
It is important to be aware that every income and expense related to the rental property you own needs to be evidenced at the end of the financial year for your self-assessment tax return. Therefore, determining how you are going to keep on top of this task is vital for bookkeeping best practice and accuracy. Some landlords choose to do this by simply filling their receipts and invoices, but this can become quite overwhelming if you are busy and not a very organised person.
Other landlords adopt the use of a spreadsheet system to record the income and expenditure which can be equally effective. Alternatively, you can choose to use accounting software systems which you can input your income and expenses information to. Either way, ensuring that your record of this information is accurate and consistent is the best way forward.
Choose Your Accounting Method:
As a landlord, you also need to determine whether you are going to use the cash or accrual accounting method. This is important because it ensures that there is consistency in the way your books are maintained. If you would rather record your income and expenses as they take place, not when they are paid, then recording via an accrual basis is ideal for you. This will allow for you to have a more accurate idea of your cash flow and business performance but can be quite time consuming.
If you only wish to record this information when transactions have taken place, then adopting a cash accounting method is the way to go. Either of these methods can be confusing so seeking from an experienced accountant is a good idea.
How Can an Accountant Help a Landlord with Bookkeeping?
It is a great idea for landlords to hire accountants to help with the management of their bookkeeping because it can save a lot of time and stress. However, there are many other ways that accountants can support landlords with bookkeeping too. See below to find out more.
Accountants can be very helpful when it comes to changes in bookkeeping. Due to bookkeeping being part of their everyday role, accountants are always aware of important legislation changes that may affect their clients, and can communicate this effectively. Not only that, accountants will be able to make changes to any processes or tax reporting information, as and when it is required to do so according to accounting regulations. This can save landlords time and a lot of money that would have been spent on fines for incorrect tax returns.
Accountants can also help landlords use their bookkeeping information to claim back expenses against taxable rental income. Whilst these expenses must contribute towards the goal of renting out a property, there are a variety of costs that are still attributable. For example, wages of cleaners or gardeners is an expense that can be claimed back against taxable rental income. Accountants are experts in determining what can be claimed back as an expense and can save landlords a lot of time and money through their expertise.
Keeping Accounts Up-To-Date:
Accountants are also great for keeping on top of landlords’ accounts to ensure they are always up-to-date. This is done both accurately and regularly which is extremely helpful to landlords because it can provide them with useful information on their profit and loss. Without an accountant managing your bookkeeping, it can be difficult to determine your financial position which influences your business decisions. Using up-to-date accounts can help you to determine whether you need to cut on costs or whether you have the funds to expand into more properties.
If you are interested in reading more about the benefits of having an accountant for rental income, take a look at our recent blog.
Should a Landlord Have a Business Bank Account?
As part of bookkeeping best practice, we recommend that all landlords open business bank accounts separate from personal bank accounts. This can be particularly helpful to landlords that have jobs alongside owning rental properties, because it helps to separate the finances and clarify what taxes should be paid. However, if you operate your rental properties through a limited company then it is a legal requirement to have a business account because these are separate legal entities.
Having a business account will save both time and money when completing your tax return because a record of all of your income and expenditure relating to the property will be in one place. Furthermore, having a business account can support the future of your rental properties or limited company because you will begin to build a credit history. This is beneficial because it can support you in acquiring loans for the business in the future, if you wish to expand.
If you are unsure whether to open a business account due to you only owning one property, get in touch today for some expert advice.
Bookkeeping Services at ARB Accountants
If you are a landlord in need of some bookkeeping support from an experienced accountant then ARB Accountants are here for you. Our Accountant Services for Landlords ensures that your records and bookkeeping is in order no matter how many properties you manage.
Whether you are a full-time landlord or work along-side making some additional funds through renting out a property, ARB Accountants are here to support you and your bookkeeping needs. If you have any questions, please don’t hesitate to get in touch by clicking here.