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Landlord clients cross the digital divide

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A surge in the number of UK landlords and increasing tax and legislative challenges in the market are fuelling an increase in landlord enquiries to accountants. What are the pitfalls of landlord clients and what software is available to help?

2nd Feb 2022
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The UK landlord population now tops 2.65m, rising 49% from 1.8m over the past five years, with the spike driven by a combination of first-time buy-to-letters, the recent stamp duty holiday, low mortgage interest rates and poor returns on other forms of investment.

While landlord client work for accountants is broadly similar to other businesses of similar size, thanks to a range of regulatory changes, landlord accounting has become an increasingly challenging area of tax and legislation. 

April 2020 changes to finance costs tax relief caught out even experienced operators and from April 2024, new Making Tax Digital for Income Tax Self Assessment (MTD ITSA) rules will require individuals with rental income above £10,000 to store and submit their accounting records digitally (or via spreadsheets and bridging tools).

MTD ITSA applies to sole traders and, if the landlord is also a sole trader, then that income is added to any rental income to work out if the new rules apply. It’s also possible that those who inherited a single property they rent out may not even realise that, in the eyes of HMRC, they’re running a business and MTD may apply to them.

Unofficial estimates put the number of landlords without an accountant at around 500,000.  As the introduction of MTD ITSA draws closer, accountants may find themselves dealing with increased demand - or increasingly complex demands - from landlords. 

Whether firms are looking to use this demand to expand their client base or just streamline operations, an increasing range of software options exists that with the right planning, processes and systems, could help them capitalise on a wave of landlord client interest.

Landlord client pitfalls

“There’s not a lot of technical difficulties involved with landlords but a fair amount of cat herding,” practice owner and tax lecturer Rebecca Benneyworth told AccountingWEB. “On the whole, they don’t keep records. They think they don’t need to and that’s an issue, particularly with MTD around the corner. I’ve had long and painful discussions about new boilers or windows that have appeared, changes of tenant and so on. And the money can get muddled with private money.”

“If we’re just talking about an accounting/bookkeeping system and not all of the other things [landlords] may want, then it’s just the same as any other business,” commented AccountingWEB reader Winnie Wiggleroom on a thread analysing software for landlord clients. “Depending on the scale, it can go from one or two BTLs that you can easily manage on Excel up to multiple properties that you can use all the usual suspects for.

“At the lower end there are hardly any transactions, but once you start to have, let’s say five or more properties or a landlord with a more commercial portfolio where there are lots more transactions, the first thing I would do is tell them to operate a separate bank account that can be linked to software,” continued the comment.

“Of course, MTD will change this slightly perhaps as we will need a quick and easy way to isolate the relevant transactions.”

A new generation of landlord software

Commenting on the landlord accounting tool thread, AccountingWEB reader Johnt27 listed several vendors making waves in the landlord software space:

  • Hammock - for small landlords with its all-in-one package
  • Guesty - for AirBnBers
  • Arthur - for larger residential portfolios/small commercial
  • Re-Leased - for mixed portfolios/larger commercial

Property finance platform Hammock is one of several new vendors looking to lead a new generation of landlord software.

Using Open Banking APIs to pull in data from existing bank accounts, these new tools give landlords access to a range of banking, bookkeeping, tax statements and property insight services.

These include the ability to track payments in real-time, rental values, occupancy rates, rental yields and a P&L analysis graph. In Hammock’s case, there is also the additional option to open a current account that is fully integrated with the software. As an issue highlighted by Winnie Wiggleroom earlier, this could help landlords with a growing portfolio keep their accounts in order.

Relatively new to the accounting space, Hammock was one of the busiest stands at the AccountingWEB Live Expo, with accountants on the lookout for a solution.

“We actually started just selling to landlords. Then so many accountants contacted us because their clients got good information from us and the clients were sending the figures through months earlier than usual, we ended up building an accountant dashboard,”  James Kilpatrick, business development lead for Hammock, told AccountingWEB.

From the dashboard, accountants can review each account via a client list, which allows access to both general stats from the business such as ownership status right down to individual transactions, bank accounts, rent and expenses.

“We’re aware of the pain points for landlords,” added Kilpatrick. “Messy documentation when it comes to invoices and receipts, different accounts relating to different properties etc. Accountants are often on the receiving end of the pain, chasing for documents to meet deadlines, so we try to give them what they need when they need it.”

Via the tax statement tool, accountants can click on sections and access all transactions that make up a particular value.

One Hammock feature highlighted by accountants as useful is the ability to manage different ownership structures. If a client owns 25% of the property then the ability exists to highlight 25% of a transaction relating to that property. This may come into its own with MTD ITSA - as highlighted by Rebecca Benneyworth, HMRC’s current position on joint lets is that transactions should be divided up and submitted on separate returns for each taxpayer.

When it comes to MTD ITSA, Hammock’s James Kilpatrick told AccountingWEB that the firm plans to manage the four quarters through Hammock and then accountants can extract the data and file the final declaration through their normal tax filing tools.

Other useful features on the landlord side include storing documents in the system such as gas certificates, insurance and energy performance certificates, with automated reminders to renew any expiring documents. Hammock will also notify the landlord of any late rent payments.

Price points

Where specific tools such as Hammock, and its competitors such as Lendlord and Landlord Vision may find a real competitive advantage is on price.

Rebecca Benneyworth told AccountingWEB that for many landlords with one or two properties, the idea of paying the equivalent of £25 a month to run things through more general accountancy tools could be offputting.

Hammock direct to ‘small’ landlords (one to three property portfolios) is £5 a month, for four to ten properties is £10, and any bigger is £20. All packages come with unlimited Open Banking integration and there are discounts for accountants depending on the number of users.

Lendlord’s core functionality is free, including bookkeeping, tax systems and document storage, with premium features such as unlimited bank account integration and automated income and expenses mapping starting from £12 a month. Lendlord has also recently announced a partnership with tax app untied to enable users to manage their taxes from the Lendlord platform. The new collaboration creates a dedicated flow for landlords to manage information about their portfolios, income and expenditure. After adding other income sources they can then file their self-assessment tax returns to HMRC from the untied capability in their Lendlord account.

Landlord Vision starts at £6 a month for one user, £10 for three users (with accountant access) and £15 for unlimited users.

Established players gear up landlord tools for MTD ITSA

With multiple delays to MTD ITSA and a lack of clarity from HMRC on several key points, it’s perhaps understandable that established accounting software providers have kept their powder dry when it comes to developing solutions.

However, they have now started to adjust their offerings to meet the expected demand to service landlord clients. Xero offers a specific ‘Xero for Landlords’ workflow, offering accountants a bespoke chart of accounts for property clients and new report templates that keep all landlords on the same system. It also has an integration with property management software Arthur.

Thomson Reuters is gearing up its OnBalance transaction recording tool to allow landlords and sole traders at the smaller end of the market who’ve never kept digital records before to prepare for MTD ITSA.

For MTD ITSA figures, the end user enters transactions using OnBalance, categorises them and presses a button to confirm they are ready for the accountant. The accountant is notified and pulls the data into the Onvio accounts accounting engine, which in turn flows into Onvio tax (the firm also has an integration between its desktop Digita product and Onvio).

Replies (5)

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avatar
By Paul Crowley
02nd Feb 2022 21:33

Pitfalls
Pointing out the errors in both directions that client made when solo

Software
Spreadsheets seem to work quite well

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Morph
By kevinringer
03rd Feb 2022 12:58

My landlord clients have only just got the hang of retaining their rental paperwork: remittance advice from letting agent, mortgage statement etc. That'll do for me. I put it straight into our tax return software. Forget MTD ITSA because HMRC will never enforce it on small landlords even if it becomes mandated (which I very much doubt it). If the client is competent enough to keep a spreadsheet then all the better, though I suspect most will consider mortgage repayments as interest.

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Replying to kevinringer:
avatar
By Paul Crowley
03rd Feb 2022 13:58

I try to get 2 things from landlords in addition to what they keep
1 Annual summary from letting agent
2 Certificate of interest from lender

MTD software will never work without those two item being sorted out at once a year, after the year end

THUS all prior reports and "helpful" guessed tax liabilities to date are just complete bunkum

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ghm
By TaxTeddy
04th Feb 2022 10:34

Glad to see these comments from Kevin and Paul.

I have been keeping quiet about this because I thought it was just my usual "refusenik" approach to software - not implementing it unless there is a clear benefit to the client.

Now I can see I am not alone in thinking that there is absolutely no point in any type of software for landlords as they really do struggle to retain the most basic of paperwork. So at best, my MTD interaction will be the spreadsheet which I am using anyway to summarise the paperwork. That's it.

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Replying to TaxTeddy:
Morph
By kevinringer
04th Feb 2022 11:28

TaxTeddy wrote:

not implementing it unless there is a clear benefit to the client.


Exactly. I am not opposed to digital and have digitised those clients who would benefit from it, but not one of my landlords. HMRC have not yet experienced the fallout from trying to extend MTD VAT to sub-£85k turnover VAT registered businesses. It won't go well. As a result I feel that if MTD ITSA is mandated at all (which I doubt), it will only be mandated for >£85k turnover clients which means it won't apply to smallscale landlords.
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