Bookkeeping for landlords

Q: What does a month look like in the books?

Illustration only. An agent collects £1,200 rent, deducts a £144 management fee and pays a £180 plumber, then sends the landlord £876. The landlord records rent £1,200, agent fees £144 and repairs £180, dated when the agent received and paid them. The same month a new tenant pays a £1,300 deposit into a custodial scheme: nothing is recorded as income. When that tenancy ends and £250 is kept for damage, £250 becomes income in the year the landlord becomes entitled to it, and the cost of the repair is recorded as an expense when paid.

A landlord should record every rent receipt at its gross amount, every expense with its date, amount and category, and tenancy deposits as money held for the tenant rather than income. Most individual landlords use the cash basis, so items are recorded when money is received or paid. Landlords within Making Tax Digital for Income Tax must also keep these records in compatible software and send quarterly updates, with the thresholds falling to £30,000 from April 2027 and £20,000 from April 2028.

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What records does a landlord have to keep?

Section 12B of the Taxes Management Act 1970 requires anyone in business to keep records of all amounts received and spent and what each was for. HMRC’s Compliance Handbook at CH11300 confirms that for these purposes “trade” includes the letting of property, so a landlord is held to the same standard as a sole trader. In practice that means:

tenancy agreements and rent schedules for each property;
a record of every rent payment received, by property and tenant;
invoices and receipts for every expense, with the property it relates to;
letting agent statements;
mortgage and loan statements showing interest separately from capital;
records of tenancy deposits, where they are held and what happened to them; and
purchase and improvement records for each property, which are needed when it is eventually sold.

GOV.UK says records must be kept for at least 5 years after the 31 January submission deadline for the tax year. Records of buying and improving the property itself need to be kept much longer, because they support the capital gains computation on sale.

Which accounting basis applies?

HMRC’s Property Income Manual at PIM1092 says that since 2017 to 2018 the cash basis has been the default for most property businesses run by individuals or partnerships with receipts of £150,000 or less. Under the cash basis, rent is recorded when it is received and expenses when they are paid, with no debtors or creditors. A landlord who elects for accruals accounting, or who is above the limit, records rent for the period it covers instead. The detail is in cash basis for property income.

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How should rent be recorded when an agent collects it?

Agents usually pay the landlord a net sum after taking their fees and paying contractors. The landlord should record the gross rent as income and the agent’s fees and repairs as separate expenses, using the agent’s statement as the source. HMRC’s Making Tax Digital guidance makes this explicit: if you only know your net income, you should ask what the full amount was, create a digital record for the full income and a separate digital record for the expenses.

Timing follows the agent, not your bank account. PIM1094 says that under the cash basis rent is recognised when it is paid to the agent, not when the agent passes it on, and that it is still income if the agent fails to pass it on. Landlords must make sure the agent reports the amounts and dates accurately.

How should tenancy deposits be recorded?

A deposit belongs to the tenant until the landlord becomes entitled to keep some of it. GOV.UK’s guidance for landlords says a tenant’s deposit must be placed in a government backed tenancy deposit protection scheme within 30 days of receiving it, either held by the scheme (custodial) or held by the landlord or agent and insured with the scheme. Scotland and Northern Ireland have separate schemes. Where the landlord or agent holds the money, it should sit in the books as a liability to the tenant, not as rent.

For tax, PIM1094 says that under the cash basis a deposit, or part of it, is only recognised as a receipt when the landlord becomes legally entitled to keep it at the end of the tenancy. PIM1052 says that for landlords not on the cash basis deposits follow generally accepted accounting practice, and any amount not refunded at the end of a tenancy is income at that point to the extent not already recognised. Holding deposits paid before a tenancy starts become deposits once the tenancy begins.

How should mortgage payments and other costs be recorded?

Only the interest part of a mortgage payment is a finance cost; the capital repayment is not an expense at all. HMRC’s Making Tax Digital guidance allows you to record either just the interest or the full payment followed by an adjustment before the return is finalised. For residential lettings, finance costs must be kept separate from other expenses because PIM2054 explains that relief for them is limited to the basic rate and given as a reduction in tax, as explained in mortgage interest relief for landlords.

Other costs should be recorded against the property they relate to, with enough description to decide whether they are repairs or improvements. That distinction decides whether the cost is deductible now or only on sale; see repairs vs improvements and allowable expenses for landlords. Using a separate bank account for the lettings is not a legal requirement, but it makes the records far easier to follow and to defend.

What changes under Making Tax Digital for Income Tax?

GOV.UK sets the entry points by qualifying income, which is gross self employment and property income before expenses from the return for an earlier year:

Qualifying income	Measured on the return for	Must use Making Tax Digital from
Over £50,000	2024 to 2025	6 April 2026
Over £30,000	2025 to 2026	6 April 2027
Over £20,000	2026 to 2027	6 April 2028

Once inside Making Tax Digital for Income Tax, each digital record must show the amount, the date the income was received or the expense incurred, and a category. All UK lettings form one UK property business, so you do not need separate records per UK property, but foreign property needs a separate record for each property. Quarterly updates are cumulative from 6 April and are due by 7 August, 7 November, 7 February and 7 May. GOV.UK says HMRC will not apply penalty points for late quarterly updates in 2026 to 2027; after that a late update earns a point and 4 points bring a £200 penalty.

Landlords with UK property turnover below £90,000 can categorise records simply as income or expense, but GOV.UK says residential landlords must still record separately whether an expense is a restricted finance cost. Records must be created before the update for that quarter is sent, and HMRC suggests making them as close to the transaction as possible.

What about jointly owned property?

Each owner records only their own share. For Making Tax Digital, GOV.UK says your share of income counts towards your qualifying income, you do not need to link your records to the other owner’s, and you can choose to make one record per income category for each quarter and leave jointly let expenses out of quarterly updates, adding them before the return is submitted. Expenses for properties you own outright must still go in every update. The tax rules on splitting income are in jointly owned rental property.

What does a month look like in the books?

Illustration only. An agent collects £1,200 rent, deducts a £144 management fee and pays a £180 plumber, then sends the landlord £876. The landlord records rent £1,200, agent fees £144 and repairs £180, dated when the agent received and paid them. The same month a new tenant pays a £1,300 deposit into a custodial scheme: nothing is recorded as income. When that tenancy ends and £250 is kept for damage, £250 becomes income in the year the landlord becomes entitled to it, and the cost of the repair is recorded as an expense when paid.

What mistakes come up most often?

Recording the agent’s net payment as rent, which understates income and hides the expenses.
Treating the whole mortgage payment as an expense.
Recording deposits as rent when received, or forgetting retained deposits altogether.
Mixing personal and letting spending on one card without notes.
Throwing away purchase and improvement records that will be needed on sale.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.