I hate paperwork — I’d rather lick the oven clean. But if you let a property — even your own home — the taxman insists you fill out a self-assessment tax return to show any profit you’ve made. That means you have to keep a receipt for everything you spend and a record of all income.
At the start of every tax year I always create a new Excel spreadsheet on which to record every item of expenditure and all rent received, so that when I come to filling out the tax return I’ll have an at-a-glance record of everything I’ve earned and everything I’ve spent.
I even go to WH Smith and buy multicoloured plastic folders in which to place all receipts. This is all good business practice.
Except that at the end of every tax year I open up the spreadsheet and it’s always blank. I never remember to write down a damn thing. The blue, red and green folders are always empty. In fact, they never make it out of the WH Smith bag.
My receipts for plumbers, joiners and handymen end up all over the place, in handbags, coat pockets, the car glove compartment, stuffed into kitchen drawers. I even found a soggy invoice for a gas engineer’s visit at the bottom of my son’s swimming bag.
Periodically I go around tipping out handbags and rummaging through every coat to collect all bits of paper that look remotely relevant, then chuck them on the pile under my desk, waiting to get sorted. This is, I suspect, bad business practice.
The 2011/2012 tax year ends tomorrow, so I’ve promised myself I’m going to get to the bottom of that paper pile (otherwise known as my filing system) this week — if only so that this year’s invoices and receipts don’t get muddled up with next year’s.
Don’t panic if you haven’t even given your tax return a thought yet, you’ve got until September 30 if you want to do it by post, or until January 31 if you can do it online. But it’s worth preparing for it now.
Tax on any profits made letting a property this year — from April 2011 to April 2012 — must be paid by January 31 next year, along with half the tax due for 2012/13. You also need to have a reasonable idea of any profit you’ve made so far, so you can put the tax to one side.
Of course, you can reduce your tax bill by deducting expenses, such as the interest on any mortgage or loan taken out to buy the property (up to its value when first let), agency fees, accountancy costs, advertising, maintenance and service charges.
You can also claim office costs such as phone bills, printing, postage and mileage for visiting your property. Don’t forget to deduct the VAT element though as you can’t claim that back on residential lets. That’s a bitter pill to swallow.
If your property is furnished, even with just the basic necessities, you can knock 10 per cent of your annual rent off your pre-tax profits for wear and tear. Alternatively, you can deduct the cost of replacing each item (but not the cost of the initial purchase).
Further advice is available online at property-tax-portal, which I turn to occasionally. Other online guides are also available.
* Victoria Whitlock lets three properties in south London