Ltd company Accounts & Rental income

Hi

Im all in a fluster!! :001_unsure:

I need some guidance on this one as its the first time Ive had to deal with rental income through a Limited company and not sure how to show in the accounts.

I have a client who provides a consultancy service as a Ltd company for which I completed his accounts and CT600 last year. But this year the client purchased a residential property through the Ltd company and is renting out and receiving rental income. How do I present his end of year accounts? Do I show the accounts without the rental income and rental related expenditure and do a seperate set of accounts for this. I assume the property purchase will sit as an asset on the normal Ltd company accounts. and am I right in thinking that there are no capital allowances for residential properties.

Any input greatfully received.:001_smile:

Comments

  • T.C.
    T.C. Registered, Tutor Posts: 1,448
    Hi. I don't deal with limited companies, but I do deal quite alot with rental properties. I would say the the income should be shown separately, in a separate set of accounts. The property purchase and any capital improvements will sit as an asset. Correct, there would be no capital allowances on the property itself. Hope that helps a little.
  • EASy
    EASy Registered Posts: 7 Regular contributor ⭐ ? ⭐
    There are a few issues here, far more that I'm prepared to write about.

    You certainly shouldn't be preparing two sets of accounts! If this is outside of your knowledge scope I'd suggest you refer your client to a local firm of accountants for assistance.
  • awwallace22
    awwallace22 Registered Posts: 35 ? ? ?
    well thank you. Even if refered its always good to expand ones knowledge!
  • Dean
    Dean Registered Posts: 646
    EASy wrote: »
    There are a few issues here, far more that I'm prepared to write about.

    You certainly shouldn't be preparing two sets of accounts! If this is outside of your knowledge scope I'd suggest you refer your client to a local firm of accountants for assistance.

    Your post is as useful as a chocolate tea-pot! Either help our MiPs or don't post at all.


    awwallace22, it is possible you may have to prepare two sets of accounts but it depends on a couple of legal/tax issues:

    1. Do you know who's name the property was purchased in i.e. the company or the individual.
    2. Do you know what the balance was on the director's loan account was before he used company funds.

    Answering these two questions will help establish the correct reporting requirements:

    If it was purchased in the company name then you will only need to prepare Ltd company accounts. You will have to show the rental income separate in the accounts and you will also need to make adjustments on the tax computation to put it into the correct tax schedule. You would also need to watch the 'trading' position. Depending on income limits it's possible that the rental income converts the company into an investment company and not a trading company (there is an 20% test for this). This would mean that BPR relief is lost on the shares for IHT.

    If it was purchased in his own name then you will have to prepare two sets of accounts, normal Ltd accounts as you have done last year, you won't show the property in the accounts and the debit entry will go to his director's loan account (this may cause a big overdrawn position and an additional 25% tax charge (s.455)). Also, a set of rental accounts for the individual. The rental income would then go on the individuals tax return.

    I do agree with the previous post, in that, if this is outside your current experience then you might like to seek a more experienced set of eyes to go through things with you.

    Kind regards

    Dean
  • T.C.
    T.C. Registered, Tutor Posts: 1,448
    What an excellent reply Dean! Well done and thanks on behalf of all forum users! :thumbup1:
  • awwallace22
    awwallace22 Registered Posts: 35 ? ? ?
    Hi Dean,

    Thanks ever so much for your reply :)

    I started out on the right track showing rental income seperate from the trading income in the company accounts then started to doubt myself!. Ive dealt with rental income via and individual and comfortable with that side of things. Its just within a Ltd company that I hesitated. Rest assured I will be putting my figures infront of more senior eyes before anything gets submitted or even passed over as I am concientious about anything being incorrect.

    The property was purchased in the companies name. The director borrrowed money from a relative which was paid into the company bank account to fund the deposit, that part Im ok with. With regards to income limits for the year, the trading income =£260k and rental income £7.2k, so things remain as a trading company.

    many thanks :)
  • groundy
    groundy Registered Posts: 495
    Just to add we usually show the net rental income on the P&L in other income. With a breakdown rental statement within the notes to the accounts and as mentioned before ensure split correctly for tax purposes.
  • Dean
    Dean Registered Posts: 646

    The property was purchased in the companies name. The director borrrowed money from a relative which was paid into the company bank account to fund the deposit, that part Im ok with. With regards to income limits for the year, the trading income =£260k and rental income £7.2k, so things remain as a trading company.

    I knew you were going to ask me this! :001_tongue:

    I won't commit to a yes or no answer but here is a really good article on the substantial test and it covers various different reliefs: Click me

    :001_smile:

    Regards

    Dean
  • reader
    reader MAAT, AAT Licensed Accountant Posts: 1,037
    EASy wrote: »
    You certainly shouldn't be preparing two sets of accounts!

    Disagree- if the property is owned by the individual then 2 sets of accounts will be required as well as a P11D to cover the benefit on any interest-free loan.
  • EASy
    EASy Registered Posts: 7 Regular contributor ⭐ ? ⭐
    Dean wrote: »
    Your post is as useful as a chocolate tea-pot! Either help our MiPs or don't post at all. [snip]

    I think that's grossly unfair - to prepare two sets of accounts in this scenario (as suggested) would be fundamentally wrong - I corrected this.
    reader wrote: »
    Disagree- if the property is owned by the individual then 2 sets of accounts will be required as well as a P11D to cover the benefit on any interest-free loan.

    It's owned by the company, not the individual.


    One accounting point that hasn't been raised so far is the fact that it's an investment company. This should be carried at open market value. Assuming we're applying UK GAAP I suggest the OP has a read of SSAP 19 (link).


    Clearly my posts are of no value to the forum, as 'Dean' requests I'll make this my last post on the AAT forums.
Privacy Policy