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Turnover for accounting purposes

What is recognised as Turnover for Rental income and is this a trading business?

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Dear All

Hopefully a very easy question for some..

A new client (Ltd co) started business as a Landlord Agency - that is what they called themselves. The company rents properties from owners (mainly properties that were not well maintained), fix them up and make it look smart before subletting (as agreed with the landlords) to tenants for a higher rent. As far as the owners are concerned they have rented it to my client who will pay them rent regardless of whether there are any tenants. The company makes its profit on the difference between the higher rent paid by the ultimate tenants and the rent paid to the property owners. 

2 questions really:-

1. Would rent receivable from the ultimate tenants be termed as Turnover of the company and rent payable to owners shown as direct costs?

2. Would this be classified as an trading or an investment business for tax purposes?  

Thank you 

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By Tax Dragon
12th May 2020 12:29

There's more to that situation than meets the eye.

Investing in hiring an accountant will save you money.

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Replying to Tax Dragon:
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By AIMCON
12th May 2020 12:44

Tax Dragon. Please dont over complicate matters. It is a simple really. The contractual side is managed by the company's solicitor. Corp tax is paid on the profit whichever way it is presented. Whether it is an investment company or a trading company will have tax issues such as ER when the shares are eventually sold.

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Replying to AIMCON:
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By Tax Dragon
12th May 2020 12:55

Whichever way it is presented?

You're the one in danger of overcomplicating! Why is there more than one way?

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Replying to Tax Dragon:
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By AIMCON
12th May 2020 13:08

Okay thanks - perhaps I'm over complicating it a bit by suggesting other ways. I was going to show Rental Income as Turnover and Rental payable as Direct Expenses in the P&L and treat this as a trading business. Perhaps I might have over think it a bit and needed confirmation from fellow members.
As it is rentals for residential purposes only - it should be exempted for VAT purposes.

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Replying to AIMCON:
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By whitevanman
12th May 2020 13:24

The income is derived from letting of property. Why should it be considered anything but rental income?

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Replying to AIMCON:
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By Tax Dragon
12th May 2020 14:40

Quote:

I was going to show Rental Income as Turnover and Rental payable as Direct Expenses in the P&L and treat this as a trading business.

If "treating this as a trading business" means applying normal accounting principles then OK, I get you; if it has any tax-related meaning then you've lost me, as the letting of property is not a trading activity, even if it's a lot of property.

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Replying to Tax Dragon:
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By AIMCON
12th May 2020 15:29

Yes I was inviting reactions to say I'm wrong. Yes of course rental income is investment income all day long but I thought there might be someone clever who would say that the difference (profit) between the rentals is turnover (commission receivable) ... hence trading. But clearly it is cannot be.

Was I sending it anonymously? No I'm AIMCON and proud of it.

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Replying to AIMCON:
RLI
By lionofludesch
12th May 2020 13:47

Quote:
AIMCON

Bang goes your anonymity.

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Hallerud at Easter
By DJKL
12th May 2020 13:44

It is just rental income and the rent payable is just a direct cost, whilst we no longer have it at one point we rented an entire block of 27 flats from a partnership we controlled to a limited company we controlled on a 20 year lease (for vat purposes) and that is how I treated within the limited's accounts.

I include under direct costs:

Any rents payable (currently none)
Dilaps receipts as a credit
Property repairs & expenditure on making good dilaps
Excess property insurance not recovered
Excess services not recovered
Leasing expenses
Property management fees

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Replying to DJKL:
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By AIMCON
12th May 2020 15:30

Many thanks DJKL - this is very helpful.

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