Accounting for rent received before due date

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  • Accounting for rent received before due date

    First, I'm assuming that if rent is payable in advance it is still earned on the due date and not at end of period it relates to.

    So my question is about accounting for rent received before the due date. E.g. rent payable monthly in advance but tenant pays 6 months up front.
    In such case my understanding is that rent becomes earned on a monthly basis, as it becomes due.

    How do you account for this?

    My current thinking from research:
    - debit 'bank' asset account to record payment received,
    - credit 'deferred income' liability account for same amount,
    - debit deferred income account as rent becomes due and credit income in P&L.

    Does this sound right?

    Regarding tax, if using cash method, should revenues be credited of the full 6 months worth of rent payment as soon as payment is received?


    I'm trying to further my understanding of accounting, so I have rather academic questions, I hope that's alright...

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  • First Time Self-Assessment: Help please
    Matt_J
    Hi All,

    I am in the process of registering for Self-assessment to declare the income and pay the tax on my property for tax year 16/17.

    I understand I don't actually need to do this until October 17 but I need to do now as I need to borrow against my residential mortgage, and...
    26-07-2017, 12:06 PM
  • Reply to First Time Self-Assessment: Help please
    jpkeates
    You don't have to submit receipts with the return, and, if HMRC are happy they're not necessary.
    If HMRC challenge the return they may ask for proof (which you won't be able to supply) - always get receipts or pay by some provable route.
    It's not happened to me in many many years of tax...
    27-07-2017, 18:18 PM
  • Reply to First Time Self-Assessment: Help please
    Matt_J
    Thanks for all the responses and advice guys, really appreciate it.

    In answer to your question JpKeates - I am the landlord and 100% of the income is paid into my account, which I then distribute/hold in trust accounts.


    Ok last question which I'm hoping some of your...
    27-07-2017, 15:37 PM
  • Reply to First Time Self-Assessment: Help please
    jpkeates
    No.

    Who is the landlord? It's not where the money ends up, it's who it's paid to that matters for income tax.
    Same issue with the trust - what you use the income for isn't important, it's who receives it....
    27-07-2017, 10:06 AM
  • Reply to First Time Self-Assessment: Help please
    tatemono
    what started out as fairly simple has now become much more complex. You need a dedicated tax accountant for this kind of complexity.

    That's because when filing self-assessment, you are liable for any errors. If you muck up, which I've done once or twice in over 20 years of filing, they...
    27-07-2017, 09:17 AM
  • Reply to First Time Self-Assessment: Help please
    jpkeates
    If you do the return now, HMRC will work out how much tax you owe - if you do it after the end of September they make you do it yourself (I think that date's right).

    Personally I pay an accountant to do the return and make sure I'm not paying too much tax. Costs me a few hundred quid (which...
    26-07-2017, 13:34 PM
  • Reply to First Time Self-Assessment: Help please
    AndrewDod
    Even if you could pay yourself (which you cannot) you would have to declare that payment as income and pay tax on it.

    Get decent tax software. I use Taxcalc.
    26-07-2017, 12:58 PM
  • Reply to First Time Self-Assessment: Help please
    Matt_J
    Sorry 1 more question as well. Do I need to work out my tax liability myself for the self assessment? Or do I just plug the numbers in the website and HMRC work out how much I owe?

    I am not self employed and pay 40% tax on the top end of my salary earnings via PAYE.
    26-07-2017, 12:36 PM
  • Reply to First Time Self-Assessment: Help please
    Matt_J
    Thanks for you response, I appreciate it.

    My question about the accountant fees was because I am a qualified CIMA chartered management accountant - but obviously not an expert in tax, hence my questions! So even if I am an accountant myself and could justify a rate, I still couldn't deduct...
    26-07-2017, 12:33 PM
  • Reply to First Time Self-Assessment: Help please
    jpkeates
    There no wear and tear allowance for the 2016/17 tax year.

    New tools are a capital cost rather than a revenue item - replacement tools might qualify, but in both cases have to be wholly and exclusively for the rental business, which isn't easy to prove if challenged.

    No, you...
    26-07-2017, 12:15 PM
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