Six tax facts for serious property developers

Having a keen interest in property development doesn’t automatically provide you with all of the skills and knowledge you need to excel in this industry. Dealing with the finances and making sure you’re making the most of every possible opportunity is paramount, especially when it comes to tax legislations. When it comes to developing property, you need to have a clear outlook of your finances and be up to date with the latest requirements. The following six tax facts will delve a little deeper into what you should know in order to adhere to tax legislations correctly and hopefully increase the bottom line of your business.

1. Consider your business set-up

The way in which you choose to structure your business can have a significant impact on your taxes. Sole traders and partnerships are hugely different compared to limited companies, so here’s quick overview of both business structures;

Sole Traders and Partnerships

If you’re operating your property development business as a sole trader or partnership you are personally liable for all of the finances associated with your business. This means that your personal assets are at risk if your business experiences any losses. You will also need to register as self-employed and submit tax returns each financial year. The tax you pay will depend on your total profit levels.

Limited Company

When you’re running your business as a limited company, there is limited liability and more legal protection. Any profits from your company will be taxed at corporation tax rates. Net profits after tax will then need to be taken out and will also be subject to income tax on the dividends made by individuals within the company. This is a much more flexible method that may be preferable if you’re working in the realms of property development.

2. Understanding depreciation

As soon as you understand depreciation, you will start to make the most of the tax benefits associated with running a property development company. Having a clear and detailed tax depreciation schedule will show all of the deductions that an investor can claim each year for depreciation, including the property’s assets. Acquiring a depreciation is an extremely useful tool so that you can accurately claim your deductions.

3. Understand your reporting requirements

Understanding what you need to report and how you need to report it is extremely useful if you’re hoping to maximize the capabilities of your property development company. This includes capital gains tax reporting and income tax reporting. Familiarizing yourself with both of these elements will help you to stay ahead.

4. Choose your accounting years correctly

One of the most important tax considerations you’re going to make as a property developer is choosing when your accounting years are. This decision is completely up to you but most businesses tend to operate on an April to April tax year. This is because it leaves the shortest gap between tax reporting which means there is less likely to be an overlap in payments.

5. Get to grips with VAT

VAT as a property developer is one of the biggest topics of discussion. It’s vital to know what your VAT rate is simply because property development tax can be a complex one to navigate. Having a clear understanding will not only help you to avoid penalties, but it will also ensure that all of your legal obligations are met as a property developer. If you’re unsure about VAT or have any questions that are directly related to property development, you should definitely ask for advice from a certified accountant who has experience in this domain.

6. Understand your future plans

When it comes to the future of your business, the tax considerations need to be future proof. As a property developer, you always have to have the future in the forefront of your mind and have a clear financial plan. Understanding the various tax types associated with running a property development company will help you to mold this plan in the best possible way. Whether you’re planning tax implications in advance, or you’re rethinking pension contributions, there’s a lot you can do now to ensure your future is safe and secure.

Hopefully, the thoughts, suggestions and facts mentioned above will provide you with further insight into taxes when you’re a property developer. Getting advice from a professional with regards to your taxes and finances is always recommended as this will provide you with a clear overview of the current financial situation and future state of your property development company.