Recording Transactions Using A Limited Company (acting as a letting agent / rent to rent)


Simon Misiewicz

5th December 2014

Posted by Simon Misiewicz on 5th December 2014

Are you concerned over the complexities of running a property management company?

Are you running a rent to rent or letting agent?

I am going to demystify the complex world of running your book keeping / accounting for your limited company. I am also going to clarify what must be done for self assessment purposes.

The Diagnosis

There may be a time that you are a high rate taxpayer. You may set up a letting agency business to look after yours / others property portfolio. There are two ways that a limited company can manage your properties:

  • Rent to rent (guaranteed rent).
  • Property management fee.

Using either one of these structures can help you as a property investor:

  • Reduce your time if you are getting other people to run the day to day activities of the business.
  • Reduce your personal tax if you are a high rate tax payer (40% at the time of writing) compared to corporation tax (20% at the time of writing).

The Treatment

Let us go through each one of these strategy in more detail

Rent to rent (guaranteed rent)

Lets take an example of a single let rent of £500. Your limited company may provide a guaranteed rent of £400 being 80% of the market rent. On the face of it, this does not sound like a good deal to the owner of the property but they will receive guaranteed rent and without any day to day maintenance issues.

The limited company may then use the property as a multi let and get rental income of £1,500. Please note that the limited company may be responsible for the utility costs and maintenance.

As such this transaction would be recorded as:

Limited Company accounts:

£1,500 rental income

£300 utility costs

£400 rent paid to the property owner

£800 profit

 The property owners accounts

£400 income

There is an additional element to this whereby the limited company hires a letting agent to deal with the tenants.

The letting agent may be responsible for the tenants whilst you maintain responsibility for the utilities, maintenance and managing the letting agent.

As such the letting agent may charge 10% of the rental income. Then the following transactions would take place

Letting agent

£150 Income being 10% fee for the multi let rent of £1,500

Limited Company accounts

£1,500 rental income

£300 utility costs

£400 rent paid to the property owner

£150 Letting agent fee

£650 profit

The property owners accounts

£400 income

Property management fee

You may charge a property management fee instead of providing the property owner with a guaranteed rent. As such you may want to charge 20% property management fee as you will be dealing with more complex issues associated with a multi let.

We will use the same examples as above so you can make direct comparisons to see what works best for you.

Letting agent

£150 Income being 10% fee for the multi let rent of £1,500

Limited Company accounts

£300 Income (20% letting fee of the £1,500 rental income)

£150 Letting agent fee

£150 profit

The property owner’s accounts

£1,500 rental income as a multi let

£300 Property management fee from limited company

When the limited company is doing a rent to rent strategy, it pays the utility costs rather than the property owner. Compared to the property owner that would pay the utilities if the limited company is charging a property management fee.


If you are VAT registered then you will be able to claim back the VAT charged from the letting agent. If you are not VAT registered then you will need to add VAT into the cost for your accounts

Please note that rental income is not VAT(able) and as such you can earn as much as you like through the rent to rent strategy.

If you are running with the property management strategy then please be aware that you will need to be VAT registered once you hit £81,000 or revenue (1).

Additional fees – maintenance work

Additional fees may be incurred such as replacing tiles in a bathroom. The labourer may charge £200.

Where the limited company is running a rent to rent strategy then it would pick up this cost.

When the Limited Company is charging the property owner a management fee then it can charge an administration fee of 20% on top of the costs.

Precautionary measures

If you are following the rent to rent strategy and providing a guaranteed rent then the owner (maybe you or another landlord) will need to check that the mortgage allows this strategy. There may be a restriction on sub letting of the property.

If you are looking for an accountant or thinking of changing your current accountant because they do not understand property investing then please book an “Initial Free Consultation” on the below website:

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