It’s emerging that the British tax authority Revenue & Customs believes tens of thousands of buy-to-let landlords are error-prone in their tax returns. So much so that reports have suggested a crackdown by the Revenue.

However, a spokesman responds, “The idea that we’re dragging in hordes of buy-to-let investors to face some medieval inquisition is just so wide of the mark.” They are, he said, worried that many people are confused about the tax regime, and up to 80,000 may be paying the wrong amount.

Letting property carries a much more complex tax calculation than the normal buying and selling of houses. In many cases it may be that investors are not claiming all their allowances and therefore overpaying.

There is a long list of expenses that can be claimed against rental income. The most obvious one is interest on any mortgages used to buy the property. Capital repayments, however, are not covered by this.

Landlords can also claim 10 percent of annual rental for “wear and tear”, effectively depreciation of furnishings, fittings and the fabric of the house. Insurance is also deductible, as are fees paid to managing agents. Legal and accounting fees are included too.

If you sell the property you must pay 40 percent capital gains on the profit, unlike your main residence which is exempt. However, the first £9,200 of profits in any year are free from tax.

If you have owned the property for more than three years, you can save 40 percent on CGT, and there’s further relief if you have lived in the property. One ploy used by canny landlords is to let their own house for six months, while living themselves in a rental property due for sale, thus eliminating CGT altogether.

As with any relationship with the Revenue, it pays to be on top of the detail.

When Syntagma Digital was a new business, bookkeeping and accountancy were a major problem. We bought a couple of software packages — Quickbooks and Sage — but both were far too complex for a simple content business selling only ad space online and with no employees.

Nowadays we rely on professional services, but for bootstrapping startups a quick, easy and FREE small business accountancy package would be a blessing.

Microsoft has helpfully provided such a package as part of its Office 2007 suite and is offering it as a standalone product for small businesses.

Download Microsoft Office Accounting 2007 here.