SA and rental income / accounting period ?

[ELBBUBKUNPS]

Hi,

This question isn’t for me but a relative, they are submitting a Self Assessment for the first time for 12-13 as she has rental property she started to rent out, she got an accountant to do it (not one from here) but the accountant seems to have gone awol and she has outstanding questions.

The return they have done looks wrong to me in respect of the rental income and mortgage payments and I have question on that.

She receives rent on the 9th of each month starting 9th May 2012 and has been rented out ever since, the rent is paid in advance. The accountant she used has put 10 months of rental income on the return, to me that’s the 9-May-12, 9-Jun-12, 9-Jul-12, 9-Aug-12, 9-Sept-12, 9-Oct-12, 9-Nov-12, 9-Dec-12, 9-Jan-13, 9-Feb-13. I thought it should be 11 months and it should include the 9-Mar-13 rent as the March rent was received in tax year 12-13, does that sound correct or for rental income can accountants account for it differently ? For example may be they excluded the 9-Mar-13 rent as this payment covered the period 9-Mar-13 to 8th-April-13 ? The accountant has done the same with the mortgage interest payments and just done it as 10 months, even though there were clearly 11 mortgage payments in that period.


I’m not sure if the above is an accountant screw up or correct advice appreciated.

Cheers

[ASB]

This might help.

http://www.hmrc.gov.uk/agents/toolki...rty-rental.pdf

PIM1051 - Income chargeable: overview

And specifically:-

Use of trading income rules: overview

It is supposed to be apportioned. So some of the payment on the 9th March payment should be included.

However this is all a bit of a faff really. So you can use the cash basis. In which case all of the payment on 9th march should be included.

The mortgage can be a bit more tricky of course.

If it's interest only then bung it through. If it's repayment apportion it when known from the annual statement.

If you discover I'm wrong please let me know; since it makesall my returns for the last couple of years wrong.....

[ELBBUBKUNPS]

This might help.

http://www.hmrc.gov.uk/agents/toolki...rty-rental.pdf

PIM1051 - Income chargeable: overview

And specifically:-

Use of trading income rules: overview

It is supposed to be apportioned. So some of the payment on the 9th March payment should be included.

However this is all a bit of a faff really. So you can use the cash basis. In which case all of the payment on 9th march should be included.

The mortgage can be a bit more tricky of course.

If it's interest only then bung it through. If it's repayment apportion it when known from the annual statement.

If you discover I'm wrong please let me know; since it makesall my returns for the last couple of years wrong.....

Thanks ASB going to go with the cash accounting.

One other question she is going to submit it online, when you do it online will it ask me to include the detailed profit and loss or just the total figures ?

cheers

[ASB]

You are able to do both. Check the guidance, depending on the level of profit you can give only minimal information.

edit: 77000 income or lower and you can enter just total expenses. Seem to recall that there is or used to be a number of 2500 profit in which case just thd profit could be declared.

but there are differences depending on whether its furnished or not, holiday let or not, overseas or not. So check the guidance for what is appropriate to you circumstances.

Its pretty straight forward. I do my accounts on quickbooks which I have conveniently categorised to the relevant boxes so its a 2 minute job. Pull report up on screen. Copy figires to page on tax return.

[Martin at NixonWilliams]

She receives rent on the 9th of each month starting 9th May 2012 and has been rented out ever since, the rent is paid in advance. The accountant she used has put 10 months of rental income on the return, to me that’s the 9-May-12, 9-Jun-12, 9-Jul-12, 9-Aug-12, 9-Sept-12, 9-Oct-12, 9-Nov-12, 9-Dec-12, 9-Jan-13, 9-Feb-13. I thought it should be 11 months and it should include the 9-Mar-13 rent as the March rent was received in tax year 12-13, does that sound correct or for rental income can accountants account for it differently ? For example may be they excluded the 9-Mar-13 rent as this payment covered the period 9-Mar-13 to 8th-April-13 ? The accountant has done the same with the mortgage interest payments and just done it as 10 months, even though there were clearly 11 mortgage payments in that period.

The rental income should always be included on an accruals basis, rather than when payment is received. However, as the payments received on 9th are for the month in advance, the amounts to include on the tax return will be broadly the same either way and will not be an issue.

There is only ever really a discrepancy between the two methods when a number of periods are either paid upfront or in arrears. For example, if a tenant is struggling to pay for the final quarter of 2013/14 and you have agreed to accept payment at the end of April, the income for that quarter would still be accounted for on the 2013/14 return.

Mortgage payments are treated the same. If the property was available for let during the whole of the tax year the deduction for interest should be for the 12 month period.

I hope this helps.

Martin

[ASB]

The rental income should always be included on an accruals basis

Martin, are you saying that the accruals basis MUST be used and the cash basis cannot. I got the impressionfrom the doucmentation that cash basis was OK and that is what I personally had always done. So, I won't worry about it going backwards, but must I change to accruals going forwards?

[Martin at NixonWilliams]

Martin, are you saying that the accruals basis MUST be used and the cash basis cannot. I got the impressionfrom the doucmentation that cash basis was OK and that is what I personally had always done. So, I won't worry about it going backwards, but must I change to accruals going forwards?

If your circumstances are similar to the OP's you would be ok to continue using the cash method as the profits would be broadly the same due to the fact the payments are being made at regular monthly intervals.

I would always advise against the cash method for a number of reasons, mainly because the results give a less accurate picture of the profits made for the year and changes to your circumstances can result in you having to switch to the accruals method. For example, if your rentals exceed the allowed threshold (£15,000); or you are struggling to get payments on time from your tenant, meaning the profits using the accruals basis and cash basis could be materially different from one another, and so the cash basis would no longer be allowed.