The movement towards keeping records digitally offers many benefits to landlords and investors.
Here’s our post on How Digital Record Keeping Can Benefit Your Business
In this post we will look at how to maximise these benefits by using both a Property Management System alongside the forthcoming Making Tax Digital programme.
What exactly is a Property Management System?
A Property Management System, or PMS for short, is a software system used by landlords or letting agents to run and manage rental properties.
Our own system, PaTMa Property Manager, is a good example of a PMS. With PaTMa Property Manager you can create and manage tenancies, handle compliance requirements and oversee maintenance budgets and rental income. You can also use a PMS to prepare your accounts and produce the figures needed for your tax return.
What is Making Tax Digital?
Making Tax Digital, or MTD for short, is an HMRC programme which will require taxpayers to keep their financial records using suitable software and then submit information about their tax affairs online.
Making Tax Digital for Income Tax Self Assessment (MTD ITSA) will be mandatory for most people, including landlords, currently using self assessment as from April 2024.
How a Property Management System and Making Tax Digital Work together
The main reason for using a Property Management System in company with Making Tax Digital is very simple: The benefits of using both together are MUCH greater than the individual sum of the parts.
By combining a PMS with MTD you stand to save work, save time, save money and free up days of your time every year to do more productive (and interesting) things.
MTD is fully supported by PaTMa and has been approved by HMRC for use in their MTD pilot.
Here are some of the key benefits of using PMS alongside MTD:
Do it once. You only need to enter every amount or piece of financial information once. It then appears in both your property records AND your accounting/tax records.
You don’t need to duplicate work by first entering figures in your property records and then again into your accounting records.
Improved accuracy. There’s no need to manually transfer data between two systems. There’s much less chance of making errors that take time to trace and correct.
Calculations are done automatically for you. There’s no need for a calculator! For example, when you enter a rent payment received that amount is added to your total rental income for that month and that year. Likewise with expenses and mortgages payments. When you enter an expense paid out, the amount is automatically added to the monthly and the annual total for that type of expense.
You can also benefit from smart tools such as Open Banking. Using a bank feed, rent payments received are automatically identified when they arrive in your bank account and can be directly entered into your financial records.
You benefit from a complete audit trail from when a payment or expense is first entered right through to it appearing in your tax records. (This is an important requirement of the MTD programme.)
You no longer need to rely on spreadsheets. While spreadsheets have their uses they are a dated way of managing data and have quite limited functionality. By using a Property Management System alongside MTD you no longer need spreadsheets to manage your finances or prepare your tax return.
You can store documents such as receipts and invoices digitally and securely. You will never lose them nor spend hours looking for them. If you need to produce a document for an accounts query or tax query it can be retrieved instantly.
You can see an overall picture of how your business is performing at any one time. You can see where you are making money, and if you might be losing it.
You can see an overall picture of your tax position periodically throughout the year. You don’t have to wait until the end of the financial year .... and then find that you owe much more tax than you were anticipating.
A PMS can allow you to easily prepare the quarterly periodic updates required by MTD.
With PaTMa you can also estimate the tax you will owe before even filing your tax return.
At the end of the day by combining a Property Management System with MTD you can run your properties more easily. And you can manage your finance, your accounts and your tax returns much more easily.
While Making Tax Digital will soon be mandatory, using a Property Management System isn’t of course. But using one without the other will involve more work and take more time. So it hardly makes sense not to use a PMS anymore. The introduction of MTD is a very good time to consider making the move to a Property Management System for managing your properties.
MTD for property is fully supported by PaTMa for property owned in personal names and has been approved by HMRC for use in their MTD pilot.