Filing tax returns is necessary, but the process can be tricky as there are several aspects that you need to brainstorm before you can finally submit one. The tricky part elevates to a new level if you are a landlord and rent properties. Just like with great power comes great responsibility; with more rental properties come more complications in filing taxes.

If you are new to filing a self-assessment tax return, you must be overwhelmed by various questions, especially if you are doing this in the last few days. For instance, reporting Airbnb income is crucial as it falls under rental income that needs to be declared. This includes understanding tax deductions, tax liabilities, and how to report it on your tax returns based on the type of property being rented out. However, there is no need to worry as you can handle this easily, provided you are focused.

Let’s dive in & find out how you can file your self-assessment tax return easily.

Understanding Self Assessment Tax Returns for Landlords

As a landlord, it’s essential to understand the process of Self Assessment tax returns to ensure you’re meeting your tax obligations and taking advantage of allowable expenses. A Self Assessment tax return is a document that landlords must submit to HMRC to declare their rental income and pay Income Tax and National Insurance on the profits. The tax return includes information about rental income, allowable expenses, and the relevant tax year.

To complete a Self Assessment tax return, landlords must first register with HMRC and obtain a Unique Taxpayer Reference (UTR) number. This number is crucial for all your tax dealings. The tax return can be submitted online or by paper, but it’s important to keep accurate records of your income and expenses to support your tax return. This includes maintaining receipts, invoices, and any other documentation related to your rental business. By staying organized and informed, you can ensure that your self assessment tax returns are accurate and timely.

Filing Self-Assessment Tax Return: Is it necessary?

Well, if you are a landlord and have a rental income of more than £2,500, you must file a self-assessment tax return and pay tax on your profits to avoid hefty penalties beginning from £100 to 100% of the tax due. Airbnb hosts may receive specific tax forms such as Form 1099-K and other tax documents that need to be included in their self-assessment tax return. This rental income can be from:

1. Holiday home in the UK

2. Residential property in the UK

3. Commercial property in the UK

On the other hand, if your rental income is less than £1,000, you are not entitled to pay any taxes. However, if it lies between £1,000 and £2,500, you need to get in touch with the HM Revenue and Customs

What are the Essential Documents for Filing a Self-Assessment Tax Return?

To successfully file a self-assessment tax return, HMRC needs you to have the following documents with you:

1. Lease or letting contracts

2. Cost of capital items used in the property if it is a holiday home or commercial property

3. Rent books, receipts, invoices, bank statements

4. Mileage logs and cost of vehicle used

5. National Insurance number

6. 10-digit unified taxpayer reference (UTR)

7. All the documents that you had when you bought the property

8. Airbnb tax documents

9. Council Tax bills or receipts

What is the Process of Filing a Self-Assessment Tax Return?

Finally, let’s deal with the elephant in the room! If you are filing your self-assessment tax return for the first time, you need to calm your mind and try absorbing small subsets of information at a time. As there are many things to analyse, you need to undertake the process slowly, especially if the deadline (31st January) is near.

When reporting expenses, remember to include direct costs such as phone calls, stationery, and marketing as part of your allowable expenses.

It is crucial to reconcile your Airbnb income with the 1099-K form received from Airbnb to ensure accurate reporting and avoid discrepancies.

1.    The Registration Process

Again, if you are doing this for the first time, you need to register for self-assessment with HMRC. After you start receiving rental income in the tax year, you need to register before the deadline, which is 5 October. For instance, if you are filing the tax return for 2020-21, you should have registered before 5 October 2020.

If you haven’t, no need to worry as HMRC may not impose any fine on you, but your tax return submission will be delayed. Why?

When you register with HMRC, it takes some time for them to process it. Moreover, you are sent your UTR via post, which takes time (10 days). If you register in the final weeks of filing your tax return, it may delay your tax return submission.

Note: Even if you fail to register before time, you can submit your taxes using your National Insurance number. Moreover, if you have registered previously, you need to re-register by using your old UTR.

2.    Align and calculate all of your rental earnings

To keep the filing process simple, you need to calculate all of your rental earnings received in the tax year. For this, you need to scan all of your bank statements and other records of received payments like receipts, invoices, etc. Cleaning fees received from Airbnb guests should be included in the rental earnings calculation.

Here are some crucial documents you need to have:

1. Leasing contracts

2. Bank statements

3. Invoices, receipts, rent books, etc.

4. Property related documents

5. Cost of capital items for a holiday or commercial property

6. Cost of vehicle used for property business and mileage logs of the vehicle

7. UTR (Unique Taxpayer Reference)

Other than that, you need to be aware of the dates when you lent the property and the money spent on it.

To make this process much smoother, you can use accounting software.

3.    Make a note of business expenses incurred

If you are renting property, it is pretty obvious that you are spending for its maintenance. Hence, some allowable expenses can be deducted from your total taxable profit. However, ensure that these expenses are exclusively used for the property, such as:

1. Property repair & maintenance costs

2. Insurance of the landlord

3. Domestic items replacement

4. Accounting and leasing agent fees

5. Interest on mortgage payments

6. Cleaning and gardening fees

Airbnb hosts need to report business expenses such as fees and commissions using Schedule C (Form 1040).

If you are new to this, you need to be aware of the recent buy-to-let tax changes for 2021. The tax relief on mortgage interest was reduced to 25% for 2019-20. It will be zero in 2021 and is replaced by a 20 per cent tax credit on the mortgage interest repayments.

4.    Complete the Form and Pay the Taxes

The next step is to fill out the tax return form. And yes, it will be a bit intimidating. However, HMRC has made it easy by adding the help buttons with all the required information in detail. The form is designed in a way that removes the irrelevant sections based on the choices you make.

Airbnb hosts need to report their gross earnings from Airbnb on the tax return form.

It is divided into two parts, namely:

1. SA100: This needs to be filled by everybody and requires you to fill income, pensions, charitable donations and benefits.

2. SA105: This needs to be filled by landlords to reveal their rental income. When completing the SA105 form, landlords should also report their residential property finance costs, which have been affected by recent tax reforms.

Once your tax bill is generated, you can use your UTR and pay it by online or telephone banking, Clearing House Automated Payment System, debit or credit card or at your bank.

Note: As 2020 has been a bit tough, taxpayers with upto £30,000 of self-assessment liabilities can pay the taxes over the span of 12 months (by January 2022).

Capital Expenditure and Property Allowance

Understanding the difference between capital expenditure and revenue expenditure is crucial for landlords. Capital expenditure refers to costs incurred to acquire or improve a property, such as purchasing a new property or adding an extension. These costs are not immediately deductible as allowable expenses on a tax return but can be claimed over time through capital allowances.

On the other hand, revenue expenditure includes costs incurred to maintain or repair a property, such as repairs, maintenance, and insurance. These costs can be claimed as allowable expenses on a tax return, reducing your taxable rental profits.

Additionally, landlords can benefit from the property allowance, a tax relief available to those who rent out a property that is not their main residence. For the 2022-2023 tax year, the property allowance is £1,000. This means you can earn up to £1,000 in rental income tax-free, or you can deduct the allowance from your rental income if your expenses are lower than this amount. Understanding these distinctions and allowances can significantly impact your tax return and overall tax liability.

Preparing for Making Tax Digital

Making Tax Digital (MTD) is a government initiative aimed at making tax administration more efficient and accurate. Starting from April 2026, landlords with a rental income above £50,000 will be required to use the MTD system to declare their rental income.

To prepare for MTD, landlords should take several steps:

• Keep accurate and up-to-date records: Ensure all income and expenses are recorded promptly and accurately.

• Use compatible accounting software: Choose software that is compatible with MTD to streamline the process of submitting your tax returns.

• Register for MTD with HMRC: Make sure you are registered for MTD to avoid any last-minute issues.

• Understand new deadlines and payment schedules: Familiarize yourself with the new deadlines and payment schedules under MTD to ensure compliance.

By preparing for MTD, landlords can ensure a smooth transition and avoid any potential penalties or fines. Staying ahead of these changes will help you manage your rental business more effectively and keep your tax affairs in order.

Final Words

As there are various aspects to keep in mind while filing your self-assessment tax return, you must be alert all the time. Although HMRC assists you well while you are undertaking the process, it is better to take assistance from an expert or a person who has already done it (especially if you are doing it in the final days). This article will surely be an excellent reference for you!

Why is it necessary for landlords to file a self-assessment tax return?

Landlords are required to file a self-assessment tax return to report their rental income and expenses to the tax authority. This is necessary for accurate calculation and payment of taxes on rental income.

What kind of rental income needs to be reported on a self-assessment tax return for landlords?

Landlords need to report all rental income received from tenants, as well as any other income related to the property, such as insurance reimbursements and service charges. Other reportable income from Airbnb, such as bonuses and incentives, also needs to be reported.

Are there any expenses that landlords can deduct when filing a self-assessment tax return?

Yes, landlords can deduct allowable expenses such as mortgage interest, property repairs, and maintenance costs when calculating their taxable rental income.

How does filing a self-assessment tax return impact a landlord’s tax liability?

Filing a self-assessment tax return allows landlords to accurately calculate their tax liability based on their rental income and allowable expenses. This can help ensure that the correct amount of tax is paid.

What are the deadlines for filing a self-assessment tax return for landlords?

The deadline for filing a self-assessment tax return for landlords is typically January 31st following the end of the tax year. Late filing may result in penalties.

Can landlords use accounting software or hire a tax professional to help with their self-assessment tax return?

Yes, landlords can use accounting software or hire a professional, such as an accountant or tax advisor, to help with the preparation and filing of their self-assessment tax return.

Are there any specific tax rules or regulations that landlords need to be aware of when filing a self-assessment tax return?

Yes, landlords should be aware of specific tax rules related to rental income, allowable expenses, and any changes in tax legislation that may impact their tax return.

What documentation should landlords keep to support their self-assessment tax return?

Landlords should keep records of rental income, expenses, receipts, and any relevant documentation to support the figures reported on their self-assessment tax return.

What happens if a landlord fails to file a self-assessment tax return or underreports their rental income?

Failure to file a self-assessment tax return or underreporting rental income can result in penalties and interest charges. It’s important for landlords to comply with tax regulations.

Where can landlords find additional resources or support for filing their self-assessment tax return?

Landlords can find additional resources and support for filing their self-assessment tax return from the tax authority’s website, professional tax advisors, and online forums or communities for landlords.