Is it better tax-wise to have all bills included in the rent or bills in the names of the tenants?

ripofflondon

ReadySteadyPop said:

What did HMRC say when you queried it?

They didn't - I did ask my accountants why the tax bill had tripled over the year before and they were adamant that it had been calculated correctly based on the new rules - which I was given to believe consisted of taxing turnover not profits but from what some of you have said above this may not be correct.  

ripofflondon

saajan_12 said:

How are your taxes calculated - are you submitting tax returns and do those have the correct values? Non financing expenses should be deducted in full, so this doesn't matter. But there's rarely "nothing else changed" - mortgage balances (and hence interest) goes down, a bill could be accidentally left off, bills could have gone down, rent could have gone up, etc. 

Definitely no bills were left off - I simply sent the accountants the same info that I had submitted in each of the previous years.  The mortgage balance stayed the same as it is interest-only

Isthisforreal99

Mortage interest is not an allowable deduction from profits but you may still a get a credit for tax relief at the basic rate.

MyRealNameToo

ripofflondon said:

It's a fixed uplift and to date the tenants have been very good about not taking the P. 

At a fixed fee then you have the opportunity to make a profit or a loss on it. The tax will move in accordance with that. 

You paying higher tax because you also made a profit on the utilities still means you are overall better off than had you have them pay them directly. Similarly you are still worse off if you make a loss on the utilities and as such pay less tax. 

ripofflondon

Isthisforreal99 said:

Mortage interest is not an allowable deduction from profits but you may still a get a credit for tax relief at the basic rate.

Ah - that's the 20%, right, so am I right in believing that no matter how much interest you pay, you can only deduct 20% of it against tax? 
Something I'm also not clear on is the difference between an 'allowable deduction from profits' and a 'credit for tax relief'.  Sorry if I appear to be asking rather basic questions

ripofflondon

MyRealNameToo said:

ripofflondon said:

It's a fixed uplift and to date the tenants have been very good about not taking the P. 

At a fixed fee then you have the opportunity to make a profit or a loss on it. The tax will move in accordance with that. 

You paying higher tax because you also made a profit on the utilities still means you are overall better off than had you have them pay them directly. Similarly you are still worse off if you make a loss on the utilities and as such pay less tax. 

Hmm.  What's also a bit odd is that the utilities profit margin for the most recent tax year didn't really change over the year before ie I didn't suddenly start making a higher profit, which I would of course have expected to be taxed on.  

MyRealNameToo

ripofflondon said:

MyRealNameToo said:

ripofflondon said:

It's a fixed uplift and to date the tenants have been very good about not taking the P. 

At a fixed fee then you have the opportunity to make a profit or a loss on it. The tax will move in accordance with that. 

You paying higher tax because you also made a profit on the utilities still means you are overall better off than had you have them pay them directly. Similarly you are still worse off if you make a loss on the utilities and as such pay less tax. 

Hmm.  What's also a bit odd is that the utilities profit margin for the most recent tax year didn't really change over the year before ie I didn't suddenly start making a higher profit, which I would of course have expected to be taxed on.  

Your accountant will be able to explain the changes rather than people here speculating. It may well be a combination of factors unless you accountant has explicitly broken down your tax liability by income source for you etc. 

theartfullodger

We can only offer opinions on what the CURRENT tax rules are, not what they WILL be when you report at some future date.  Obvs.... Country needs more tax income.... innit...

Deniseconfused

Im sure your property is registered as a HMO ? 

Secondly I am surprised this accountant of yours ( accountant or a bookeeper ? ) hasn't explained how tax credits work for interest on a mortgage 

lets say rent £1000 month
allowable expenses including utility ( as a HMO would all use elec etc jointly so cannot separate usage with utility co ) say £200
profit  = £800

you pay interest on a mortgage of say £500 pm 

When your tax return is completed you claim a yearly tax credit of £6000 ( 500 x 12 ) which reduces your tax liability at 20% against the profit. 

 

ReadySteadyPop

ripofflondon said:

ReadySteadyPop said:

What did HMRC say when you queried it?

They didn't - I did ask my accountants why the tax bill had tripled over the year before and they were adamant that it had been calculated correctly based on the new rules - which I was given to believe consisted of taxing turnover not profits but from what some of you have said above this may not be correct.  

Taxing turnover would collapse the BTL business model faster than you could say bad tenant, it isn`t that, but the tripling of the tax bull is very odd, you need to investigate properly and have everything itemised so you can see clearly what is going on. Accountant may be dodgy, straight answers will come from HMRC. My bet at the moment is that the problem will be the accountant.