Hi. Welcome back to our Pro Masterclass on property investment through limited companies. In this lesson, we're focusing on a critical aspect of running your property investment business, bookkeeping. Now while it might not sound like the most exciting part of property investment, getting your bookkeeping right is essential for staying compliant, managing your finances effectively, and ultimately maximizing your profits. So let's get started. When you buy property through a limited company, the property belongs to the company and so does the business bank account. All the cash flowing in and out of the bank account needs to be accounted for, and that's the core of bookkeeping. It's about keeping accurate and detailed records of all the financial transactions related to your business. For property investors, this includes everything from rental income and mortgage payments to maintenance costs and refurbishments. Accurate bookkeeping is not just a good business practice, it's a legal requirement. HMRC requires for you to keep records for at least six years and failing to do so can result in serious penalties. So what are the specific requirements? HMRC expects you to maintain records that clearly show all of your income and expenses related to your business. This includes receipts and invoices for expenses, bank statements and loan agreements, contracts for property purchases and sales, details of income from rental properties, and records of mortgage payments and interest. These records are needed for preparing accurate tax returns. If HMRC decides to investigate your business and finds your records are incomplete or inaccurate, they can impose penalties. For example, if your records are inadequate, you could face a fine of up to three thousand pounds. And if errors in your records lead to underpaid tax, HMRC can charge interest on the underpaid tax and impose additional penalties of up to a hundred percent of the tax due. It's important to get it right. One of the trickiest aspects of bookkeeping for property investors is understanding the difference between capital and revenue expenditure. This distinction is important because it affects how you report expenses and what you can claim on your tax return. Revenue expenses are the day to day running costs of your business, things like repairs, maintenance, utility bills, and property management fees. These expenses are deductible from your rental income in the year that they occur, reducing your taxable profits, meaning you pay less corporation tax. Capital expenses, on the other hand, are costs that improve or add value to your property, like major renovations, extensions, upgrading a kitchen, or even buying a new dishwasher rather than replacing an existing one. These expenses can't be deducted in full in the year they're incurred. Instead, they're added to the value of the property and can reduce your capital gains tax when you sell the property. Capital expenses are not immediately tax deductible, which makes it important to categorise them correctly. But what about refurbishments? Can you claim these as revenue expenses? Well, it depends. If the refurbishment is simply restoring the property to its original condition after wear and tear, it's considered a revenue expense. However, if you're making significant improvements like adding a new bathroom or converting a loft, these costs will be classified as capital expenditure. A common trap landlords fall into is recording major expenditure as revenue expenses when bookkeeping. Getting this distinction wrong can lead to problems with HMRC. If you incorrectly categorise a capital expense as a revenue expense, you could end up underpaying tax, which could trigger an investigation and potential penalties. Accurate record keeping can quickly become complex, especially as your property portfolio grows. You need to track different types of expenses for different properties, each of which might have different tax implications. If you're managing buy to let properties, furnished holiday lets, and maybe even commercial properties, each one of these comes with its own set of rules and tax treatments. You also need to be aware of how to handle mortgage payments and interest, as well as how to record any costs from property purchases and income from property sales. It's also important to keep your records up to date. Ideally, you should be doing your bookkeeping on a regular basis, monthly at the very least, so you always have a clear picture of your financial situation. Waiting until the end of the year to get everything in order can lead to mistakes and missed opportunities for tax savings. Another common challenge is managing physical receipts. While HMRC now accepts digital copies, you still need to make sure they're clear, readable, and securely stored. Losing a receipt or misplacing an invoice could mean missing out on a legitimate tax deduction or worse having an incomplete record if HMRC investigates your company. Now, given all this complexity it's easy to see how traditional bookkeeping methods can be overwhelming. Many investors turn to accounting software like Xero or QuickBooks, but these tools are often filled with accountant jargon and require a solid understanding of bookkeeping principles to use them effectively. This is where mistakes happen. Capital versus revenue, categorising expenses and even just keeping track of which expense belongs to which property. That's why we developed a unique approach, prompt based bookkeeping. At Provestor we've created an accounting app specifically designed for property investors. Instead of bombarding you with the complex terminology and account codes, our app uses simple, jargon free prompts to guide you through the process. Here's how it works. Our app securely connects to your bank account via Open Banking and automatically downloads your bank transactions. Then, instead of having to remember how to categorise everything, our app asks you straightforward questions like, which property was this expense for? This helps you keep track of expenses by property, whether it's a buy to let or a furnished holiday let, and automatically apply the right tax rules. Is this dishwasher a replacement or a new item? Depending on your answer, the expense will be claimed back this year or claimed when you sell the property. When does this insurance policy start and end? This allows the app to correctly allocate the expense over the relevant financial years. With these prompts, our app ensures that your bookkeeping is not only accurate but also incredibly easy to manage. You don't need to worry about whether you're getting things right. Our app guides you step by step, reducing the risk of errors and helping you keep high quality records that will stand up to scrutiny by HMRC. Another feature of our app is the ability to attach scanned receipts directly to your transactions. This means you can ditch the shoebox full of paper receipts and keep everything organised digitally. When it comes to time to prepare your tax return or if HMRC ever come knocking, all of your records are right there, easily accessible. One of the biggest advantages of our prompt based system is how much it automates your bookkeeping. With the open banking connection, your transactions are automatically imported, reducing the need for manual entry. The app's prompts make it easy to categorize expenses correctly, which means your books stay accurate with minimal effort. You might be wondering how often you should be doing your bookkeeping. With our system, a quick update once a week or even once a month is usually enough to keep everything in order. Many of our clients find they can manage their bookkeeping in just a few minutes, allowing them to focus on growing their property portfolio instead of getting bogged down in paperwork. What's more, because it's so easy to track expenses, we find our clients are more likely to claim for smaller day to day expenses like books, subscriptions, mileage, and phone costs. Over the course of a year, these soon add up reducing your tax bill further. So to sum up, accurate bookkeeping is crucial for running a successful and compliant property investment business, and it's not something you can afford to get wrong. From understanding the difference between capital and revenue expenses to keeping detailed records for each property, the complexity can be daunting. But with the right tools like our prompt based bookkeeping app, you can simplify the process avoiding costly mistakes, ensuring that your records are always in top shape. Now you know how to keep track of your company's cash. In our next lesson, I'll take you through the different options for withdrawing profits from your company. Thanks for joining me, and I'll see you in the next lesson.