6 Reasons Property Investors Should Use Xero

21/04/2021 by David M Slater

6 Reasons Property Investors Should Use Xero.

Xero is a popular cloud based accounting package that can help you run your property investing business. Having recently converted my own property investing limited company bookkeeping and record keeping system over to Xero I thought it would be useful to share 6 reasons why I will never look back having started using Xero.

Making Tax Digital (MTD). MTD for individuals, including property investors who invest in their own names, is being introduced from April 2023. For limited company investors it will be introduced some time from 2026. For landlords this will mean a number of important considerations for property investors:

  • Quarterly Reporting. There will be a requirement to make quarterly submissions to HMRC. The final submission will be known as an end of period statement and will be where the landlord pays their tax liability and makes claims for any allowances that they would normally on their tax return.

  • Digital Records. These records must include the amount, date and category of each transaction. They are likely to replicate the categories that are reported on for Self Assessment. It must include digital links from transaction records through to submissions.

  • Accounting Software? HMRC are trying to encourage real time information but it will be acceptable so long that it is accurate to the date of the submission. MTD creates an ideal opportunity for landlords to embrace cloud based accounting solutions which will enable them to have a better understanding of their financials and to enable them to treat property investing more like a business. It may therefore be a good time to consider adopting accounting software that is MTD compliant. Whatever your choice regarding accounting software all submission must be made using Application Programming Interface (API) compliant Software. At the most basic this could be bridging software that would effectively allow excel reports to be used by linking them to the HMRC MTD system. Integrated accounting software, such as Xero, is likely to be the most efficient way for MTD income tax submissions.

Treat property investing as a business. Considerable sums of capital are required to start a property portfolio and what might start off as a side hustle, can quickly become highly profitable and match and even outperform income earned from a salary or trading business. Your portfolio therefore needs to be treated as a business and a key tenet of this is having a good understanding of the numbers relating to the business. Xero will enable you to view overall financial performance and also performance specific to each property, helping you to make informed decisions.

Robust record keeping. Did you know that property investors who invest individually are required to keep their records for 5 years and limited company investors for 6 years? One of the key advantages of Xero is that the subscription includes the Hubdoc app which is a document collection and management software which is linked to your Xero account. You can then either email PDF receipts or use the mobile app to take photos of the receipts. These invoices are then converted into digital information that can extract the required information to be compatible with Xero. The digital files are then stored in the cloud. This removes the requirement to keep copies of paper receipts (and risk losing them) or a separate digital repository for your records.

Real time information on your properties. If you are relying on your tax returns and accounts that are produced by your accountant at the end of year then by the time they are produced, the numbers may already be up to 9 months out of date. This does not enable you to make timely business decisions. Having a Xero account that is updated as expenses come in will enable you to have the required information at your fingertips at all times, enabling you to make informed decisions.

Collect rent with ease. If you deal directly with your tenants and do not utilise a managing agent then you are able to send them recurring invoices through Xero which will automatically collect their rent each month via direct debit. The first invoice that is sent to the tenant, at the start of the tenancy will give them an option to set up direct debit payment via linked app Go Cardless. This means that in the future if you agree to increase the rent then you can simply adjust the amount to be collected and it will then be collected automatically each month. The other benefit is that Go Cardless will notify you if the tenant has failed to pay or if they decide to cancel the direct debit.

App Integration. One of the best features of Xero is that it allows you to integrate with a large and growing number of applications that can be used to help you run your property business. The above section mentions Go Cardless but there is a large volume of other apps that can be utilised which can help make your life easier.

Conclusion. Transferring my bookkeeping and record keeping system over to Xero has been a complete game changer and has made me regret not doing it much sooner. I no longer have to spend hours at the end of each tax year trying to track down my receipts and invoices and remembering each of my bank account transactions as all of this work is conducted on an iterative basis. The fact that I have financial information at my finger tips allows me to see the performance of each property and make timely and informed decisions.

Accufy Accounting are a Xero partner, if you would like discuss moving your accounts over to Xero them please get in touch.

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