How FreeAgent apportions income and expenses for landlords
This article explains how FreeAgent apportions income and expenses when your accounting year is different from the tax year. It also explains how FreeAgent calculates provisional figures for your tax return when the tax year overlaps two accounting years.
Please note:
- The information in this article currently only applies if you have an unincorporated landlord account type.
- FreeAgent's Self Assessment functionality for unincorporated landlords is only available from the 2022/23 tax year onwards.
If your business’s accounts are not prepared up to the end of the tax year (5th April), HMRC requires the income and expenses from two accounting years to be apportioned in order to calculate accurate figures for a single tax year.
If the tax year overlaps with two accounting years and the end date of the second accounting year hasn't passed when you file your tax return, you need to submit provisional figures to HMRC on your Self Assessment tax return.
How FreeAgent apportions income and expenses
The income and expenses should be apportioned based on the number of days covered by the accounts in each accounting period.
FreeAgent will automatically apportion the income and expenses by performing the following calculation:
- Determine the number of days from the start of the tax year to the end of the first accounting period.
For example, if your accounting year runs from 1st January 2022 to 31st December 2022, there will be 270 days between 6th April 2022 and 31st December 2022.
- Calculate the proportion of income and expenses from the first accounting year using this ratio.
For example, if you received £36,500 rental income during the accounting year ending 31st December 2022, the proportion of that income received during the 2022/23 tax year (6th April - 31st December 2022) will be £27,000 (£36,500 x 270/365).
- Determine the number of days from the start of the second accounting period to the end of the tax year.
For example, if your next accounting year begins on 1st January 2023, there will be 95 days between 1st January 2023 and 5th April 2023.
- Calculate the proportion of income and expenses from the second accounting year using this ratio.
For example, if you received £73,000 rental income during the accounting year ending 31st December 2023, the proportion of income received during the 2022/23 tax year (1st January 2023 - 5th April 2023) will be £19,000 (£73,000 x 95/365).
- Add the two apportioned amounts together to get the figure for the tax year.
Using the example above, your apportioned rental income for 2022/23 would be £46,000 (£27,000 + £19,000).
Submitting provisional figures
If the tax year overlaps with two accounting years and the end date of the second accounting year hasn't passed when you file your tax return, you need to submit provisional figures to HMRC.
These figures are estimates based on the data up to the point of submission and must be submitted by the tax return filing deadline of 31st January. When the accounting year ends and the latter accounting figures have been finalised, you’ll need to send another submission to HMRC with finalised figures.
First, FreeAgent will check that your accounting year end date doesn’t match the end of the tax year (5th April). If the end date of the following accounting year hasn't passed when you attempt to file the tax return, FreeAgent will notify you that you need to use provisional figures.
For example, if your accounting year runs from 1st January to 31st December and the second accounting year begins on 1st January 2023, the end date of the accounting period (31st December 2023) won’t have passed if you file your tax return for the 2022/23 tax year on 30th September 2023.
Box 20 on the Main Return page will be automatically set to ‘Yes’. Please note that in box 19, you must enter that you’re submitting provisional UK property income and expenditure figures as your current accounting year hasn't ended yet (the accounting year to 31st December 2023 using the example above). You'll also need to enter when you expect to resubmit finalised figures to HMRC for the full accounting year.
Next, you’ll need to enter the date that you want FreeAgent to prepare your provisional UK property accounts to, in the ‘Provisional Figures’ section of the UK property page. When you file the tax return, FreeAgent locks your accounts to the selected date.
How FreeAgent calculates provisional figures
FreeAgent will apportion the income and expenses up to the provisional date selected by the number of days that fall within the tax year, by performing the following calculation:
- Determine the number of days from the start of the second accounting period to the end of the tax year.
For example, if your next accounting year begins on 1st January 2023, there will be 95 days between 1st January 2023 and 5th April 2023.
- Determine the number of days from the start of the second accounting period up to the selected provisional date.
For example, if you entered 30th September 2023 as the date to prepare your provisional UK property accounts to, there will be 273 days between 1st January 2023 and 30th September 2023.
- Apportion the figures based on the number of days from the start of the second accounting period to the end of the tax year, by the number of days from the start of the second accounting period up to the selected provisional date.
For example, if you received £20,500 rental income up to the selected provisional date of 30th September 2023, the apportioned rental income would be £7,133.70 (£20,500 x 95/273).
Adjusting the provisional figures
If you need to adjust the provisional figures, we would recommend temporarily selecting a provisional date of 5th April, checking the figures FreeAgent produces, and creating journal entries.
By selecting the end of the tax year as a temporary measure, your income and expense figures will align with the transaction values for that period, which you can see by viewing a profit and loss report over a custom date range (from the start of the second accounting period to 5th April).
If you’re unsure whether you need to adjust the provisional figures, please ask your accountant.
Submitting finalised figures to HMRC
If you’ve submitted provisional figures to HMRC, you then need to submit finalised figures once the second accounting year that overlaps the tax year has ended. The finalised figures must be submitted within 12 months after the tax return filing deadline of 31st January.
To do this, you must first unlock your Self Assessment tax return that contains the provisional figures that you sent to HMRC.
Once you’ve unlocked the tax return, make sure that box 20 on the Main Return page is set to ‘No’ and box 19 no longer states that you’re sending provisional figures.
When you’re happy that the figures are correct and the tax return is complete, you can re-file your amended tax return to send the finalised figures to HMRC. If you’re unsure, please speak to your accountant.