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My letting agent collects my tenant's rent on the 11th of the month.

They then take their fee (8%) at that time of the whole amount. Then they only pay out from the 11th of the month until the end of the month. (i.e. their "statement" period is from the 1st-last of the month).

The remaining amount is carried over to the next month and paid out with the first "half" (ish) of the next month's rent.

My question is how can I account for this in my tax return this year?

The tax return runs until the 5th April, so on the 5th April the situation will be:

  • My letting agent took the full rent for 11th March-10th April
  • I received (in my bank account) part of the rent (for 11th March-31st March)

How should I show this? Should I show this as an income of the partial rent or the full rent?

If I show it as income of the partial rent should I also split the letting agent's fee as well? As they take this before splitting the rent, so technically if I haven't received part of the rent I also haven't paid the letting agent's fee for that period either.

Very confused!

Thanks in advance

  • If a letting agent is holding onto that much of your money, you should change agents! An agent should be giving you all the rent (misus their charges) within days of the tenant paying. – Ian Feb 15 '16 at 16:12
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Technically, generally, tax is due on income for the period (tax year), received or not. This is because in accounting terms even if you've not received the income, it's earned in the period and therefore owed to you, and therefore you have a debtor and the debt is equal to the value of the income (unless it is written off or marked down).

In practical terms, neither accountants nor HMRC will generally get excited about this sort of thing if you're consistent - you'll be fine just working on actual amounts you actually received and the fees you've actually paid (in the period).

HMRC don't really want to (and can't afford to) get into silly arguments with everyone about unimportant stuff like this, wasting time communicating with their accountants who will find ways to demonstrate their client is entirely in the right because of their clever accounting that can't really be disproved. You can imagine the letter going back to HMRC "...but if you really insist, then my client will happily pay them the extra £2.24 due from accounting it your way that you would have had next year anyway, and by the way the additional accountancy charges to my client will reduce next years profit and tax revenue will then be £7.22 less..."

  • Remember that the rent is normally paid in advance in the UK, so most of it may not have been "earned" at the time it is paid. – Ian Feb 15 '16 at 16:09
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    +1 for in practical terms no one cares, provided you're consistent. E.g. 12 months rent payments taxed in each tax year. I hope I never have a tenant that is due to pay on the 5th or 6th of the month! – Ian Feb 15 '16 at 16:11
  • @Ian Actually that's a whole other issue isn't it, I guess technically you might have to class it as earned anyway on the basis that it's been paid and isn't refundable. In some cases (e.g. no references) rent might be paid 6 months in advance too, and I imagine HMRC would take a dim view of the idea that 6 months rent paid on the last day of the tax year, in the pocket and not realistically going anywhere, isn't due for any tax until possibly a whole year later!! Another reason to just go by the actual period in/out/profit. – Michael Feb 15 '16 at 16:37
  • But the rent is refundable if the property was to burn down for example, so in the 6 months rent in advance case, I would account for it each month. (But I would not take 6 months rent in advance, as the risk of a S21 needing 12 months notice is too great!) – Ian Feb 15 '16 at 16:42
  • @Ian Yes, true, it's not completely inconceivable that occasion to refund could arise, but still, I wouldn't like to be the accountant explaining this to HMRC :) I imagine the tax man would be saying something like "yeah, very clever, give us our slice of the pie and on your bike, if it burns down we'll give it back next year" I think most career land lords would take the money though. – Michael Feb 15 '16 at 17:00

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