HMO Accountants in Harrow
Our HMO accountants in Harrow prepare the accounts and tax returns for landlords who let houses in multiple occupation. A shared house brings accounting work a single let does not: licensing fees, room-by-room rent with bills included, fire-safety works that split between repairs and capital, capital allowances on the common parts, and a bigger Section 24 bill because HMO borrowing is usually higher. We are specialist property accountants and treat HMO accounts as routine work.
HMO Accounts, Tax Returns and Licensing Costs
Mandatory HMO licensing applies to any property let to 5 or more people forming 2 or more households. Many councils, including a large share of London boroughs, also run additional licensing schemes that pull smaller shared houses of 3 or 4 tenants into licensing within designated areas. The licence fee is an allowable revenue expense for the property business, typically £500 to £1,500 per property for a five-year licence. Fire risk assessments and the works that follow (FD30S doors, smoke and heat detection, emergency lighting) are a mix of revenue spending, such as replacing detectors like for like, and capital spending, such as installing a system in a house that never had one. Specialist property accountants split these correctly so the current-year deduction is neither overstated nor lost.
Article 4 directions remove the permitted-development right to convert a family house (use class C3) into a small HMO (use class C4), so a conversion needs full planning permission. Many London boroughs and university cities have them in force. This affects the accounts in two ways. Planning and architect costs on a conversion are capital, not revenue, and the planning risk on future conversions changes the case for buying further shared houses personally or through a limited company SPV.
Room-level rent matters when bills are included. The total rent received is gross rental income for income tax, and the utilities, broadband and TV licence you pay are allowable expenses. Since the December 2023 council tax regulations (SI 2023/1175), an HMO in England is banded as a single dwelling rather than room by room, and where rooms are let on separate tenancies the landlord is usually the person liable for the bill. That council tax is then an allowable expense. We reconcile utility and council tax costs against the rent each period, which keeps the year-end accounts accurate.
Section 24 restricts mortgage interest relief for every individual landlord, but the effect on landlords of shared houses is usually larger because yields support higher borrowing. Finance costs get a tax credit at 20% instead of a full deduction, and from April 2027 property income moves to its own rates of 22%, 42% and 47% with the credit rising to 22%. A higher-rate landlord on a 75% loan-to-value property can pay far more tax than the cash flow suggests. We model the Section 24 cost each year, set out the Section 24 mortgage interest strategies that fit, and show when incorporation starts to pay.
Capital allowances on a shared property depend on where the spending sits. Plant and machinery inside a let room or self-contained flat is in a dwelling-house and does not qualify. Plant in the common parts can: fire alarm systems, emergency lighting, door entry and CCTV, communal lighting and electrics in hallways and stairs. The Annual Investment Allowance gives full relief on qualifying spending in the year it is incurred, so on a conversion we identify the common-parts items before the rest is added to the property base cost. For the line between repairs and improvements more generally, see our guide to allowable expenses and capital expenditure for landlords.
Making Tax Digital for Income Tax started on 6 April 2026 for landlords and sole traders with qualifying income over £50,000, and the threshold falls to £30,000 from April 2027 and £20,000 from April 2028. Qualifying income is gross rent before expenses, so a single five-bed HMO can cross the line on its own. That means digital records, quarterly updates to HMRC through compatible software, and a final declaration in place of the old Self Assessment tax return. We set up the bookkeeping per property so the quarterly figures, the year-end accounts and the Self Assessment tax return come from the same records. Our Making Tax Digital guide for landlords covers the deadlines in full.
VAT rarely applies to shared houses because residential rent is exempt from VAT, which also means a landlord cannot reclaim the VAT on refurbishment or agent fees. The exception is serviced accommodation, where short stays are standard-rated and the £90,000 VAT registration threshold can bite. Property investors who mix rooms with short lets need that line drawn before the income is reported. Stamp duty land tax is the other tax to plan for when the portfolio grows: buying a further property carries the 5% additional-property surcharge, whether you buy personally or through a company.
Common HMO Tax Mistakes
Council tax after the 2023 change. Shared houses that were banded room by room before December 2023 should now carry one band for the whole property. Some were moved across automatically and some needed a request to the Valuation Office Agency. We check the band on every shared house we take on, because an out-of-date per-room banding can overstate the bill for years.
Finance-cost split on refinancing. The Section 24 restriction applies to mortgage interest and similar finance costs, but costs such as arrangement fees and broker fees need looking at one by one. Lumping everything into one finance-cost figure and applying the restriction to the lot overstates tax.
Holding personally or in a limited company. The tipping point depends on portfolio size, marginal income tax rate, borrowing and hold period. For a higher-rate landlord with 4 or more HMOs and a hold of 5 years or more, a property company often wins on after-tax yield even after corporation tax. For a first shared house, personal ownership usually wins on simplicity. The comparison needs current numbers each year because tax rates and finance costs both move, and the stamp duty land tax and capital gains tax on a transfer are covered in our property incorporation guide.
Licensing fees and penalties. A licence fee is deductible in the year paid. Running an unlicensed HMO can lead to an unlimited fine under the Housing Act 2004 or a civil penalty, and tenants can claim a Rent Repayment Order for up to 12 months of rent. Fines and penalties are not deductible, so we flag renewal dates well ahead.
Licensing status is not tax status. A house that drops below the mandatory licensing threshold for part of a year because tenants left is still taxed on how it is actually let. HMRC looks at the operation, not the licence.
Safety certificate timing. The five-yearly EICR (Electrical Installation Condition Report) and the annual gas safety check are revenue expenses. Remedial work after a failed EICR splits between revenue (testing and like-for-like repairs) and capital (a full rewire or an upgraded consumer unit).
HMO Accounting Worked Examples
5-bed HMO conversion: capital allowances on the common parts
A terraced house in HA3 converted from a family home to a five-bedroom HMO for £58,000. The structural work, en-suite bathrooms and the rewire inside the bedrooms were capital, added to the property base cost for capital gains tax. The fire detection and emergency lighting system, door entry, CCTV and communal lighting in the hall and stairs qualified as plant in the common parts. That gave a £9,400 Annual Investment Allowance claim in the year of spending, worth about £3,760 of income tax to a higher-rate landlord.
Section 24 incorporation analysis, 6-HMO portfolio
A higher-rate landlord with six HMOs in HA, NW and W postcodes had £210,000 of gross rent and about £82,000 of mortgage interest. Section 24 was costing about £14,000 a year more than the pre-2017 rules. We modelled moving the portfolio into a property company: stamp duty land tax on the £2.1m market value at the residential rates plus the additional-property surcharge, capital gains tax on the transfer, corporation tax savings over a 7-year hold, and inheritance tax planning. The recommendation was a phased transfer starting in year 2, lined up with a refinance window.
Council tax re-band after the 2023 regulations
An HMO landlord with 6 rooms in a converted Victorian house had each room banded separately, about £8,400 a year across the building. After the December 2023 regulations required shared houses to be banded as a single dwelling, we asked the Valuation Office Agency to re-band the property. It was placed in Band E as one dwelling at about £2,100 a year, with a refund of about £3,200 for the period before the change was processed.
HMO Accountant FAQs
Mandatory HMO licensing applies to any property let to 5 or more people forming 2 or more households, whatever the number of storeys. Many councils also run additional licensing schemes that cover smaller shared houses of 3 or 4 tenants in designated areas. A licence usually runs for 5 years and the application covers fire safety, gas safety, electrical safety and management standards.
Individual landlords cannot deduct mortgage interest from rental income. Finance costs get a tax credit at 20% instead, rising to 22% from April 2027 when property income gets its own tax rates. Higher-rate landlords with large mortgages on shared houses pay noticeably more tax than their cash flow suggests, which is why many property investors move larger portfolios into a limited company.
It depends on portfolio size, your marginal income tax rate, borrowing and how long you plan to hold. For higher-rate landlords with 4 or more HMOs, high borrowing and a hold of 5 years or more, a property company often wins on after-tax yield even after corporation tax. For a first shared house, personal ownership usually wins on simplicity. The comparison has to be rerun each year with current numbers.
Plant and machinery in the common parts of an HMO can qualify: fire alarm systems, emergency lighting, door entry, CCTV, and communal lighting and electrics in hallways and stairs. Plant inside the let rooms or self-contained flats is in a dwelling-house and does not qualify. The Annual Investment Allowance gives full relief on qualifying spending in the year it is incurred.
Since the December 2023 regulations, an HMO in England is banded as a single dwelling rather than room by room. Where rooms are let on separate tenancies the landlord is usually liable for the bill, and that council tax is an allowable expense. If your shared house still carries per-room bands, ask the Valuation Office Agency to re-band it.
Yes, if your qualifying income is over the threshold: £50,000 from 6 April 2026, £30,000 from April 2027 and £20,000 from April 2028. Qualifying income is gross rent plus any self-employment income, before expenses, so one large HMO can be enough. You keep digital records, send quarterly updates through compatible software and file a final declaration after the tax year.
The Non-Resident Landlord Scheme applies. Your letting agent, or the tenants if they pay you directly more than £100 a week, deducts basic-rate tax from the rent unless HMRC has approved you to receive it gross. The tax deducted is then set against your UK Self Assessment tax bill.
Keep records for at least 5 years after the 31 January filing deadline: tenancy agreements, rent receipts or agent statements, mortgage statements showing interest separately, repair and maintenance invoices, capital spending records with the common-parts items identified, licensing fees and renewal dates, fire safety, EICR and gas safety certificates with the related invoices, council tax records, and utility bills where bills are included in the rent.