Bookkeeping / Accounting software and other buy to let Q's
Discussion
Hello all,
I am returning to buy-to-let after a long time (about 13 years), I have acquired my first property and finished renovating it, just let.
So far so good in the past I used to be self employed and my accountant used to look after everything for me, now I am in employment and not looking to go into full time self employment. I was looking to get some software for either just the bookkeeping or a full accountancy software package I have seen some free bookkeeping packages on line as well and was wondering if these will be sufficient, i.e. be compatible with the latest legislation etc. Obviously if the free stuff will be sufficient I don't want to pay anything or would it be better to purchase a basic package or go the whole hog and get some accountancy package.
The business will be a partnership (me and my wife) not thinking of limited at the moment either, we are looking at getting about 4 properties within the next couple of years with one of them fully paid for and the others mortgaged.
Up until now I have kept records using a well known spreadsheet product, I will be speaking to my accountant in the near future to seek his advice as well, but wanted to get an independent wider picture of what people use and whether they do just the bookkeeping or do they do a bit more. Is it worth going limited or with such a small portfolio is it just an extra cost without much benefits and what disadvantages are their in not doing so will lenders lend to a limited company?
I am returning to buy-to-let after a long time (about 13 years), I have acquired my first property and finished renovating it, just let.
So far so good in the past I used to be self employed and my accountant used to look after everything for me, now I am in employment and not looking to go into full time self employment. I was looking to get some software for either just the bookkeeping or a full accountancy software package I have seen some free bookkeeping packages on line as well and was wondering if these will be sufficient, i.e. be compatible with the latest legislation etc. Obviously if the free stuff will be sufficient I don't want to pay anything or would it be better to purchase a basic package or go the whole hog and get some accountancy package.
The business will be a partnership (me and my wife) not thinking of limited at the moment either, we are looking at getting about 4 properties within the next couple of years with one of them fully paid for and the others mortgaged.
Up until now I have kept records using a well known spreadsheet product, I will be speaking to my accountant in the near future to seek his advice as well, but wanted to get an independent wider picture of what people use and whether they do just the bookkeeping or do they do a bit more. Is it worth going limited or with such a small portfolio is it just an extra cost without much benefits and what disadvantages are their in not doing so will lenders lend to a limited company?
The software will be fine if you know the basic rules and regulations. Indeed some software will produce your annual return. But the software is only as good as the data that you put in. Furthermore the software won't be able to advise you about tax planning.
It's a bit like doing all your car maintenance using a Haynes manual. In theory you should have no problem. In practice it might be a bit more complicated than it looks.
It's a bit like doing all your car maintenance using a Haynes manual. In theory you should have no problem. In practice it might be a bit more complicated than it looks.
Eric Mc said:
You don't really need a fully fledged double entry book-keeping/accounting system to record the income and expenditure amounts for rented properties. A decently set up spreadsheet will normally be perfectly adequate.
The software might allow automatic production of self-assessment returnsCountdown said:
Eric Mc said:
You don't really need a fully fledged double entry book-keeping/accounting system to record the income and expenditure amounts for rented properties. A decently set up spreadsheet will normally be perfectly adequate.
The software might allow automatic production of self-assessment returnsThe Self Assessment software I use has a dedicated section set aside for Rental Income and it is very good. However, I still find it easier to carry out prelimenary summary and analyses of the rental income and costs - especially if the client rents out more than one property - in a separate set of spreadsheets and then just insert the relevant totals into the rental section of the tax software.
Also worth pointing out this isn't a business (at least in the way the OP thinks when mentioning partnerships and limited companies) - it is rental income. It is calculated in a similar way and the word business is sometimes used to describe things, but it is not self-employment income. The split of the profit/loss will be based on the ownership of the properties.
I agree with Eric, the best thing to use here for only a few properties is a simple, well setup spreadsheet. No need to waste money on accounting packages which in all honesty are not setup for this type of task.
I agree with Eric, the best thing to use here for only a few properties is a simple, well setup spreadsheet. No need to waste money on accounting packages which in all honesty are not setup for this type of task.
Hi, I had a chat with my accountant and he said it should be OK with me recording everything on a spreadsheet.
He did suggest creating a limited company but others have said that this will make it difficult and expensive to get buy-to-let mortgages. On Property Tribes some one suggested (as I understood it) to create a limited company and then transact through that. Any thoughts on the limited company idea whether to create one and purchase properties through that or just carry on as is, jointly in mine and the wife’s name.
Or go with this option to quote the poster on Property Tribes “On the subject of Ltd Co, you can own the properties in your joint names, take the mortgages in your joint names, but just report all income and expenditure of the properties in a Ltd Co. I have been doing this for 10 years, and have had a HMRC tax investigation wherein nothing untoward was brought up regarding this arrangement. This is particularly useful if you are in full time employment, being whacked for full NI and income tax contributions, so that your profit (or loss as it should be in most cases) can be either retained within the company, or taken if your total earnings do not put you in the higher tax bracket. Bear in mind that if you retain profits, your ltd Co will pay 20% income tax in that tax year, and if you draw profits in future years, you will pay 20% personal income tax too, the same as if you pay 40% income tax and withdraw profits. So there is no real gain - just a choice of whether or not you wish to build equity within the company for future (e.g. when you retire) at a lower effective current tax rate.”
He did suggest creating a limited company but others have said that this will make it difficult and expensive to get buy-to-let mortgages. On Property Tribes some one suggested (as I understood it) to create a limited company and then transact through that. Any thoughts on the limited company idea whether to create one and purchase properties through that or just carry on as is, jointly in mine and the wife’s name.
Or go with this option to quote the poster on Property Tribes “On the subject of Ltd Co, you can own the properties in your joint names, take the mortgages in your joint names, but just report all income and expenditure of the properties in a Ltd Co. I have been doing this for 10 years, and have had a HMRC tax investigation wherein nothing untoward was brought up regarding this arrangement. This is particularly useful if you are in full time employment, being whacked for full NI and income tax contributions, so that your profit (or loss as it should be in most cases) can be either retained within the company, or taken if your total earnings do not put you in the higher tax bracket. Bear in mind that if you retain profits, your ltd Co will pay 20% income tax in that tax year, and if you draw profits in future years, you will pay 20% personal income tax too, the same as if you pay 40% income tax and withdraw profits. So there is no real gain - just a choice of whether or not you wish to build equity within the company for future (e.g. when you retire) at a lower effective current tax rate.”
I always think that using a limited company to own rental properties creates far more long term trouble than if the property was held personally.
Think of the issues -
the company owns the property
the company receives the rent
the company pays Corporation Tax on the rental profits -
So far so good. Corporation tax is only 20% so on the face of it, there are some tax savings to be had - especially if the individual is a Higher Rate Income Tax payer
However, the individual will want to take those profits out of the company. When he does so (usually by means of a dividend) he may be subject to personal Income Tax - especially if he is a Higher Rate Taxpayer
What happens when the property is sold?
For an individual, they would pay Capital Gains Tax - which will be at 18% or 28% depending on whether they are Higher Rate Taxpayers or not. However, an individual receives an annual Capital Gains Tax allowance which can be offset against the gain. If the property is owned by more than one individual, they each receive their own annual Capital Gains Allowance, leaving less of the gain exposed to Capital Gains Tax.
If the property is owned by a company, and subsequently sold, it will pay Capital Gains Tax at the Corporation Tax rate (20%). However, companies doe not get the personal Annual Capital Gains Allowance.
And, having sold the property, the owner of the company is still stuck with geting the proceeds of the property sale out of the comopany and avoiding an Income Tax charge.
Think of the issues -
the company owns the property
the company receives the rent
the company pays Corporation Tax on the rental profits -
So far so good. Corporation tax is only 20% so on the face of it, there are some tax savings to be had - especially if the individual is a Higher Rate Income Tax payer
However, the individual will want to take those profits out of the company. When he does so (usually by means of a dividend) he may be subject to personal Income Tax - especially if he is a Higher Rate Taxpayer
What happens when the property is sold?
For an individual, they would pay Capital Gains Tax - which will be at 18% or 28% depending on whether they are Higher Rate Taxpayers or not. However, an individual receives an annual Capital Gains Tax allowance which can be offset against the gain. If the property is owned by more than one individual, they each receive their own annual Capital Gains Allowance, leaving less of the gain exposed to Capital Gains Tax.
If the property is owned by a company, and subsequently sold, it will pay Capital Gains Tax at the Corporation Tax rate (20%). However, companies doe not get the personal Annual Capital Gains Allowance.
And, having sold the property, the owner of the company is still stuck with geting the proceeds of the property sale out of the comopany and avoiding an Income Tax charge.
The only time I think a limited company MAY be of benefit is if you are actually running a property development business. In other words, the purpose of the company is to buy and sell properties. In these cases, the sale of the property is not a capital transaction but a trading transaction. From time to time, such companies rent out properties they have developed pending the finding of a customer for the property.
Quite a common situation at the moment.
Quite a common situation at the moment.
Yes this is where I am on this when clients ask
David
David
Eric Mc said:
I always think that using a limited company to own rental properties creates far more long term trouble than if the property was held personally.
Think of the issues -
the company owns the property
the company receives the rent
the company pays Corporation Tax on the rental profits -
So far so good. Corporation tax is only 20% so on the face of it, there are some tax savings to be had - especially if the individual is a Higher Rate Income Tax payer
However, the individual will want to take those profits out of the company. When he does so (usually by means of a dividend) he may be subject to personal Income Tax - especially if he is a Higher Rate Taxpayer
What happens when the property is sold?
For an individual, they would pay Capital Gains Tax - which will be at 18% or 28% depending on whether they are Higher Rate Taxpayers or not. However, an individual receives an annual Capital Gains Tax allowance which can be offset against the gain. If the property is owned by more than one individual, they each receive their own annual Capital Gains Allowance, leaving less of the gain exposed to Capital Gains Tax.
If the property is owned by a company, and subsequently sold, it will pay Capital Gains Tax at the Corporation Tax rate (20%). However, companies doe not get the personal Annual Capital Gains Allowance.
And, having sold the property, the owner of the company is still stuck with geting the proceeds of the property sale out of the comopany and avoiding an Income Tax charge.
Think of the issues -
the company owns the property
the company receives the rent
the company pays Corporation Tax on the rental profits -
So far so good. Corporation tax is only 20% so on the face of it, there are some tax savings to be had - especially if the individual is a Higher Rate Income Tax payer
However, the individual will want to take those profits out of the company. When he does so (usually by means of a dividend) he may be subject to personal Income Tax - especially if he is a Higher Rate Taxpayer
What happens when the property is sold?
For an individual, they would pay Capital Gains Tax - which will be at 18% or 28% depending on whether they are Higher Rate Taxpayers or not. However, an individual receives an annual Capital Gains Tax allowance which can be offset against the gain. If the property is owned by more than one individual, they each receive their own annual Capital Gains Allowance, leaving less of the gain exposed to Capital Gains Tax.
If the property is owned by a company, and subsequently sold, it will pay Capital Gains Tax at the Corporation Tax rate (20%). However, companies doe not get the personal Annual Capital Gains Allowance.
And, having sold the property, the owner of the company is still stuck with geting the proceeds of the property sale out of the comopany and avoiding an Income Tax charge.
Gassing Station | Finance | Top of Page | What's New | My Stuff