If you’re reading this, you may be thinking about becoming a landlord. It could be a good business idea as you’re providing something everyone needs in some capacity: a place to live, work or play.  

One thing you will have to know about landlords is if they’re self-employed. That’s why we’ve written this article to explain:

  • Why some landlords are self-employed and others have limited companies
  • The pros and cons of being self-employed and running a limited company as a landlord
  • Which taxes you would have to pay as a landlord 
  • How Countingup can help

Why some landlords are self-employed

According to the English Private Landlord Survey 2018:

  • 94% of landlords let property as an individual. 
  • 45% of landlords have only one rental property
  • 38% of landlords own between two and four rental properties

This means that the size of most landlord operations is fairly small, so they won’t need much external help, but they might hire specialists such as: 

  • Quantity Surveyors
  • Bricklayers
  • Plasterers
  • Painters
  • Plumbers 
  • Electricians 

However, these will often be hired on a non-regular basis. This can be particularly true if the property you’ve bought is in good condition. So you may not need to hire them as full-time staff, especially if you’ve only got one property.  This is one of the main reasons why most landlords are self-employed versus owning a limited company. 

Why some landlords have a limited company

Landlords that have a larger, more complex portfolio (e.g. multiple properties over multiple geographical locations), are more likely to set up a limited company. The greater number of properties may generate more money, but it will also bring up more problems that the landlord can’t solve alone. 

For example, the staff we mentioned in the previous section may be hired on a full time basis in order to deal with the workload. More properties, more problems, and more people needed to deal with those problems. 

The advantages of being self-employed as a landlord 

  1. Simple structure

Being self-employed can be a lot simpler to wrap your head around. There is less admin and things are generally easier to understand. This is a great way to start out because it allows you to focus more on practical skills rather than knowing large amounts of legal and financial jargon. 

  1. Lower initial cost 

The simpler business structure means you can do more things yourself, such as not having to hire an accountant. 

  1. Low commitment 

When you’re trying to figure out which business idea is best for you, being self-employed is great because it allows you to dip your toe in the water and see if you’re well suited to it without much initial effort. 

The disadvantages of being self-employed as a landlord

  1. You are responsible for everything

When you set up as being self-employed, all of the business’ liability rests with you. If the business ends up owing debts, it will affect your personal finances. 

  1. A less flexible structure

It can be difficult to grow your business in this way as it’s designed for smaller operations. You’ll have to transfer things to a limited company after a certain point. 

  1. Less prestigious perception 

Rightly or wrongly, the perception of sole traders among some people is that you’re not as professional as someone who has a limited company. One reason is because there is often more commitment required to run a limited company. But ironically, as we mentioned earlier, if things go badly the consequences can be much worse for someone who is self-employed. 

The advantages of running a limited company as a landlord 

  1. You have more flexibility 

With a limited company, you can, in theory, make it as big or small as you want, without much holding you back from a structural perspective. 

  1. You’re taken more seriously

As mentioned before, some sole traders aren’t taken as seriously as limited companies. The reverse is true here. Potential business partners will see you in a more positive, reliable light. 

  1. Limited liability 

A limited company can provide a lot of protection to your personal finances if things go wrong. If you end up in financial trouble, your business is liable not you. 

  1. More profitable

Corporation tax is currently at 19% for companies with profits under £300,000 and 30% for companies with profits over £300,000 per year. The more you earn, the more tax efficient it can be to use a limited company versus being a sole trader, which is subject to higher income taxes. 

The disadvantages of having a limited company as a landlord

  1. More admin burden

As a limited company, you’re required to record and report more of the company’s operations and financial health while trading. This includes things like the company’s equity and share structure as well as all the assets and liabilities it holds. This can take extra time and consideration to navigate properly.

  1. Restrictions on your company’s name

New companies can’t infringe on the names of old ones – while there are similar restrictions for sole traders, the standard for limited companies is even higher. You’ll need to be careful to avoid using someone else’s name mistakenly and getting caught up in legal trouble.

  1. Firmer line between company/personal assets

Things bought by the company are owned by it, not you. Therefore, you have to declare personal usage of company assets (like laptops or cars) as a personal benefit on your tax in order to stay compliant. 

Which taxes do landlords have to pay?

Depending on their setup, landlords can either pay corporation tax as a limited company or income tax and national insurance when self-employed. 

How can landlords reduce their tax bill?

In a similar way to most businesses, they can claim on any relevant expenses to lower their tax liability. This can include:

  • Property repair and maintenance costs (but not improvements)
  • Replacement of domestic items 
  • Accounting and letting agents’ fees
  • Landlord insurance
  • Running costs

Depending on what costs your tenants take on board, you can also claim for:

  • Letting agent fees
  • Light and heating costs
  • Service charges
  • Ground rent
  • Cleaning costs
  • Advertising costs

Make more time to focus on property with Countingup

If you’re a landlord, or soon to be landlord you’ll have your hands full running your business. 

You’ll likely be thinking about: 

  • The condition of your property or properties
  • Your current and future tenants
  • The housing market in their area
  • The economy

You don’t want to have to worry about:

  • Invoicing
  • Submitting your Self Assessment
  • Figuring out your profit and loss tally
  • Sharing your finances with your accountant 

Trusted by thousands of self-employed people across the UK, Countingup is the business current account and accounting software in one app. It automates time consuming financial admin so that you can focus on running your business. With instant invoicing, automatic expense categorisation and cash flow insights, you can confidently keep on top of your business finances everyday.

The two in one app enables you to share your information instantly and securely with your accountant, giving you more time to focus on running your business. Find out more here and sign up for free today.