rental property tax

google5442

I rent out a UK property

The property was empty for a short period in March 2015, i.e. in the tax year 2014-15

I received a council tax demand for the empty period, but I did not pay it until after 6 April, i.e. in the tax year 2015-16

I believe this can be deducted from rental profits in my self assessment. Should it go in the self assessment for 2014-15, or 2015-16?


Also a hypothetical related question. Suppose rent is due on 3 April, but the tenant pays by cheque. I bank this in on 4 April, which was a Saturday, so it doesn't get processed until 6 April and the funds do not clear until a few days later. Which tax year should this be in?

If there is no material difference to the tax due then would HMRC really care? What about if it would take me to the next tax band?

HappyMJ

You record income the day that the rent is due.

If the rent goes unpaid your records will show a debtor owing money to your business which goes under assets. If the tenant continues to not pay the rent then you will need to write the debt off in the next tax year which would become an expense.

You can't hold on to a cheque so the payment is in another tax year.

google5442

HappyMJ wrote: »

If the rent goes unpaid your records will show a debtor owing money to your business which goes under assets. If the tenant continues to not pay the rent then you will need to write the debt off in the next tax year which would become an expense.

You can't hold on to a cheque so the payment is in another tax year.

I'm sorry, I don't follow. My tenant hasn't stopped paying. The question was simply if the rent was due in one tax year, but not actually received until the next tax year (whether because of banking delays or late payment), which year should it be reported in on a self-assessment? Not sure what debt or assets has to do with it.

HappyMJ

google5442 wrote: »

I'm sorry, I don't follow. My tenant hasn't stopped paying. The question was simply if the rent was due in one tax year, but not actually received until the next tax year (whether because of banking delays or late payment), which year should it be reported in on a self-assessment? Not sure what debt or assets has to do with it.

If the rent is due on the 1st you record it as income on the 1st whether you get it or not.

If the rent goes unpaid by just one day it's late and you record that you are owed the amount of the rent so therefore you now have an asset. The asset is the tenant also known as a debtor.

If the rent is then paid on the 10th (another tax year) then you reduce the amount due by the tenant/debtor and increase your cash on hand or bank balance. You then transfer that to your personal account and reduce the cash on hand/bank balance and record an amount under drawings.

Most of use wouldn't bother recording the rent is late by a few days as it's too many entries to bother about and simply record the rent was paid on time....i.e on the 1st.

You can change the dates in the above example to be closer to your exact due dates for rent and the actual date of payment but that's how it works when you close your accounts at the end of a tax year. You always record the rent as income on the due date whether you get it or not.

booksurr

rental income is required to follow normal accounting rules as explained by happymj

that means income is NOT based on the dates you bank money nor the date the money clears in the bank, nor the date you physically pay a bill days after that bill becomes due.

income is accounted for the day the tenant becomes due to pay it to you, ie your rent due day 3 April, not when you get round to banking 4th April, nor when it is processed 6th April, nor when it clears 3 days later.

expenditure follows the same principle. Your supplier's invoice has a date on it. That is the date you use. The council tax relates to the period March 15 as that is the date on which the council "invoiced" you for it, so goes in 14/15

is this your first year as a LL? this is a rather basic explanation: http://www.hmrc.gov.uk/manuals/pimmanual/pim1101.htm

perhaps there is more of the manual you need to read?
http://www.hmrc.gov.uk/manuals/pimmanual/Index.htm

google5442

Thanks, that manual is exactly what I was looking for!