Rental tax expense?

[ben100]

I'm doing my first tax return for my rental property, so the year is 6th april to 5th april but I have buildings insurance which ran from 31st july to 30th july & was paid in one whole annual payment. How do I log this?

[jpkeates]

It depends on the basis you are completing your tax return.
If you are doing it on the "cash" basis, you record each expense (and income) as it's incurred.
If you are doing it on an accruals/proper accountancy basis, you apportion the expenses (and rent and everything else) on a pro-rata basis.

Having said that, my accountant doesn't seem to accrue monthly amounts to accommodate the tax year ending on the 5th of a month.
As long as there are 12 instances of monthly items in each tax year, the outcome is virtually identical for tax purposes.
I do pay my insurance monthly though, which helps.

[Section20z]

I'm doing my first tax return for my rental property, so the year is 6th april to 5th april but I have buildings insurance which ran from 31st july to 30th july & was paid in one whole annual payment. How do I log this?

It's an allowable expense in whatever year you incurred it so just put the premium down.

[ben100]

It's an allowable expense in whatever year you incurred it so just put the premium down.

Yes but how as the year is 6th april to the 5th april following year I paid the whole amount for july to july?

[jpkeates]

You need to let us know which of the two possible ways you're doing the return, because the answer is different.

[ben100]

You need to let us know which of the two possible ways you're doing the return, because the answer is different.

What do you mean two possible ways? It's my first rental and I've logged down all income and expenses, what other way is there to do it?

[jpkeates]

Post #2

It depends on the basis you are completing your tax return.
If you are doing it on the "cash" basis, you record each expense (and income) as it's incurred.
If you are doing it on an accruals/proper accountancy basis, you apportion the expenses (and rent and everything else) on a pro-rata basis.

It's likely with one property, you'd use the cash basis, but if you have other income (or plan to expand) you might prefer the accruals basis.

[Section20z]

Yes but how as the year is 6th april to the 5th april following year I paid the whole amount for july to july?

It's the date you paid the money that counts like any other expense. Your gas cert also lasts a year and your electric cert lasts 5 years but you allocate it when you pay it.

[jpkeates]

It's the date you paid the money that counts like any other expense. Your gas cert also lasts a year and your electric cert lasts 5 years but you allocate it when you pay it.

Only if you are using the cash basis for your return and lots of people don't.

Not all landlords can use the cash basis (if they're a limited company for example).
There's a maximum turnover as well, but you'd be a very successful landlord to hit that limit, but it used to be deprecated, and if you've ever done a return using the accounting method, you can't switch back.

[ben100]

Post #2

It's likely with one property, you'd use the cash basis, but if you have other income (or plan to expand) you might prefer the accruals basis.

Ok so how would I put down the annual payment? As if it's from july to july this overlaps into the following tax year.

[cuttingman]

6th April 2019 to 5th April 2020. You can put all your income and expenses into that tax return as whole amounts. Or you can apportion the income and expenses over the number of days within that tax return.

So for example you buy insurance or any expense on the 4th April 2020. You can put the whole amount in the 2019-2020 tax return. Or divide the amount by 365 and put 1 day in the 2019-2020 and 364 in the 2020-2021.

I believe this is the correct way to do it.

[jpkeates]

If you're using the cash basis the expense is recorded as occurring on the day you paid the insurance and the period of coverage is academic.