I run a letting agency. I have to account for the collected rents from tenants in various properties owned by landlords. these rents are then passed onto the landlords minus my management fee. Under tax laws the rent taken is not my income only the management fee. how can i show the movement of this money without it becoming represented as income in my profit and loss account in which case it would be liable to vat.
You need advice from an accountant to be sure you are in compliance with local laws. But from the perspective of using Manager as an accounting tool, the general approach would be as follows.
Set up one or more liability accounts for the landlord(s) and an income account for yourself. When a tenant pays, split the receipt. Allocate your management fee to the income account and the remainder to the liability account. When its time, pay the landlord(s) from the liability account(s). You may wish to consider or actually be required to open a separate bank account for the landlord(s) money.
thanks for getting back to me. I did something similar when we used solar accounts. the difficulty now lies in that i do not seem to be able to pay from a liability account only a bank account. We do have an actual bank account for clients funds by the way,
All bank or cash transactions must be entered in their respective modules. But you allocate the transaction to the liability account when paying a landlord. This is equivalent to debiting the liability account and crediting the bank account.
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thanks for that, between posts I had sort of sorted that out. I like this software very much. I have been using solar accounts but the desktop version has limitations that M does not. Thank you
Would I have to raise a purchase invoice against the landlord for the rent with a debit note for the management fee in order to show an audit trail
No. Purchase invoices are for bills from suppliers you will pay in the future. Just Receive Money into the client funds bank account. You can use a second line item to split the receipt into landlord’s share and your fee. Or you can put all of it into the clients fund and, when you Spend Money to pay the landlord, use a second line line item to pay yourself. Or, you can Transfer Money from the clients fund to your bank account in a separate transaction from paying the landlord.
Am I still able to produce an invoice to the tenant on behalf of the landlord for the rent or should that not happen as it is not my income
You can invoice the tenant, because the tenant is making payment to you. The previous discussion relates to what you do with the money once you have it. After all, the tenant doesn’t know the terms of your agreement with the landlord. Nor do they need to. They deal with you. You deal with the landlord.
You are correct that the payment received is not all your income. But you are not going to categorize it as such. Most of it will go the clients fund liability account–and that distinction is already true when you raise the sales invoice.
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