When you work out your taxable rental profit you can deduct allowable expenses from your rental income. The expenses must be wholly and exclusively for the purposes of renting out the property. This means that if an expense wasn’t incurred for the purpose of your property rental you can’t offset the cost against the rental income. The expenses must also be revenue, rather than capital expenses.

Common types of expenses you can deduct if you pay for them yourself are:

• general maintenance and repairs to the property, but not improvements (such as replacing a laminate kitchen worktop with a granite worktop)
• water rates, council tax, gas and electricity
• insurance – landlords’ policies for buildings, contents and public liability
• interest on a mortgage to buy the property
• costs of services, including the wages of gardeners and cleaners
• letting agent fees and management fees
• legal fees for lets of a year or less, or for renewing a lease for less than 50 years
• accountant’s fees
• rents (if you’re sub-letting), ground rents and service charges
• direct costs such as phone calls, stationery and advertising for new tenants
• vehicle running costs (only the proportion used for your rental business)

Expenses you can’t claim a deduction for include:

• the full amount of your mortgage payment – only the interest element of your mortgage payment can be offset against your income
• private telephone calls – you can only claim for the cost of calls relating to your property rental business
• clothing – for example if you bought a suit to wear to a meeting relating to your property rental business, you can’t claim for the cost as wearing the suit is partly for your rental business and partly to keep you warm – no identifiable part is for your property rental business
• personal expenses – you can’t claim for any expense that was not incurred solely for your property rental business

Claiming part expenses

You might incur a cost where only part of it is expense for your property rental business. If a definite part of a cost is expense incurred wholly and exclusively for the property business, you can deduct that part. For example, if a property is used for private purposes for 3 months and commercially let for 9 months, then 9/12ths of the mortgage interest can be deducted from the rental income.

The 31^st July is rapidly approaching. If you are registered for self-assessment, make sure you pay the second instalment for 2015-16, that falls due on this date, unless no payment is due.

If you are self-employed, and if you are confident that your profits have fallen in the accounts year to 31 March 2016, compared to 2014-15, then you may be able to make an election to reduce the payment on account due in two weeks’ time. Any downward adjustment in tax payable must be based on realistic calculations as HMRC will take a dim view if your tax return for 2015-16, when filed, shows that your downward adjustment in your July payment was excessive.

We can help.

If the amount of tax due cannot be disputed, but you are unable to make the payment due to cash flow difficulties, contact HMRC now to discuss your options. Very often, HMRC will agree to a direct debit instalment plan or otherwise give you more time to pay. It is important that you contact the tax office before the end of the month; in this way you can reduce the possibility of penalties for late payment. Unfortunately, HMRC will still charge you interest on unpaid tax – the current rate charged is 3%.

There are a number of ways you can pay the tax.

HMRC should have sent you a Statement showing what you owe on the 31 July. Simply fill in the payment slip at the bottom of the form and take it to your bank with a cheque before the end of the month. Don’t forget to allow enough time for the cheque to clear before the 31^st.

Alternatively, you could pay by online or telephone banking. The bill will tell you which account to pay into. It will generally be one of two offices:

1. HMRC Cumbernauld: sort code 08 32 10, account number 12001039, or
2. HMRC Shipley: sort code 08 32 10, account number 12001020.

HMRC will also accept payments by debit or credit card. You will need to use HMRC’s online payment portal at https://www.tax.service.gov.uk/pay-online/self-assessment.

If you are self-employed, either as a sole trader or in partnership, and you use a business vehicle for private purposes, HMRC will seek to disallow any motoring costs, petrol etc., and capital allowances based on the purchase cost of the vehicle, to cover the private use proportion.

The only practical way that you can do this is to record your car mileage at the beginning and end of your trading year, to ascertain the total miles for the period, and a log of your business miles.

At a minimum, you should be able to provide evidence of total annual mileage and a detailed record of business mileage for the same period. The log should include the following information:

• Date of the business use
• The address you were attending and the round trip mileage
• The reason for the trip

This could be recorded in a diary kept in your car or by using one of the multitude of Apps now available for this purpose.

Armed with this information, any disallowance of running costs and capital allowances will be fairly based and not some arbitrary figure dictated by HMRC. Estimates will not cut muster with the tax office, you will need to back up numbers with evidence.

If you are employed, have the use of a company car, and your employer pays all of your petrol, including that used privately, then you will be subject to the car fuel benefit charge. The only way to avoid this tax charge is to repay your employer for petrol used privately. To do this you will need to keep a log of all private journeys. At the end of each tax year, or periodically during the tax year, you should multiply the private use miles by the approved car fuel rate – this can be accessed from the HMRC website at https://www.gov.uk/government/publications/advisory-fuel-rates. Just multiply the private use miles by the appropriate rate per mile and pay this amount to your employer.   

 If you want your motoring costs fairly apportioned for private use, you will need to keep a mileage log.

In the immediate fall-out after the Brexit vote it was rumoured that interest rates would fall when the Bank of England Monetary Policy Committee (MPC) met on the 13^th July. Following the meeting, Mark Carney announced that interest rates would be held at 0.5%.

However, the minutes of the July 13^th MPC meeting make it clear that at their next meeting on the 6^th August, interest rate reductions or other easing of monetary policy may be on the cards. The minutes say:

“The MPC is committed to taking whatever action is needed to support growth and to return inflation to the target over an appropriate horizon. To that end, most members of the Committee expect monetary policy to be loosened in August. The Committee discussed various easing options and combinations thereof. The exact extent of any additional stimulus measures will be based on the committee’s updated forecast, and their composition will take account of any interactions with the financial system.”

In other words, the expected fall in rates to say 0.25%, may well happen next month.

If rates do fall this is great news for borrowers, who can expect fixed rate mortgages to be offered at more favourable rates.

It will be bad news for savers. In fact, as the indications of a rate fall are fairly strong, it may pay to take advice and consider your options. National Savings and the High Street banks are already adjusting rates in a downward direction in anticipation of rate falls next month. Perhaps time to take a look at fixed-rate savings bonds?

George Osborne has floated the idea that the UK could reduce corporation tax to 15% or lower in an attempt to make the UK the place to do business. By making this surprise announcement at the beginning of the month, he will no doubt have in mind the many larger institutions that are reconsidering a move from London to other EU financial centres following Brexit.

 There are concerns that this could, if implemented, produce a race to the bottom, as other countries try to out-compete the UK rates.

 The present 20% corporation tax rate is already scheduled to reduce in the coming years. The present timetable of reductions is:

• From 1 April 2017 reducing to 19%
• From 1 April 2020 reducing to 17%

Of greater concern, certainly for smaller businesses, is maintaining profitability in the coming years as the UK adjusts to a new alignment with the EU and the rest of the world. Uncertainty is likely to be a constant companion at our board meetings until the post Brexit changes are completed.

 Businesses would be best advised to observe basic good housekeeping:

• Tighten credit control,
• Maintain liquidity,
• Reconsider investment decisions that are unlikely to have an immediate, positive impact on profitability,
• Rewrite budgets and make sure monthly financials are reviewed.

Anchoring larger, mostly financial institutions to UK residency in the hope of minimising any down-side losses to the UK economy, whilst laudable, does not necessarily help small business owners – if they are unable to make profits a reduction in tax rates at some future date is largely irrelevant.

 It will be interesting to see if George Osborne, or his successor, come up with Band-Aid policies for smaller business development in the coming months.