Limited company contractor with rental income? HMRC must be notified by 5 October
Direct Answer
If you receive rental income, HMRC must be notified by 5 October after the end of the first tax year it was received — whether you run a limited company or not. Rental income is personal income, taxed via self assessment at your marginal rate. Failure to notify triggers penalties. The obligation is entirely on you — HMRC will not chase you first.
Why rental income is a personal matter, not a company matter
Running a limited company does not change how rental income is taxed. If you own a rental property in your own name, any income from it is your personal income — it goes on your personal self assessment return (SA100), not through your company.
Your limited company is a separate legal entity. It files its own corporation tax return covering its own income and expenditure. Your salary and dividends from the company are declared on your personal SA100, as is any rental income. The two tax obligations sit side by side, but they are entirely separate.
This catches some contractors off guard. They assume that because their financial affairs are handled via a company, rental income is somehow absorbed into that structure. It is not. If your property is in your name, the income is yours personally — and so is the tax bill.
One further complication for higher-rate taxpayers: Section 24 restricts the mortgage interest relief available to personal landlords to the basic rate of income tax (20%). If you are paying 40% tax on your income — as many contractors are — you cannot deduct your full mortgage interest before calculating tax. You get only a 20% credit. This means you can end up paying tax on income already used to service the mortgage.
The notification deadline and penalties
HMRC requires you to notify them by 5 October following the end of the first tax year in which you received rental income. Tax years run 6 April to 5 April. So if you first received rental income during the 2025–26 tax year (which ended 5 April 2026), your notification deadline is 5 October 2026.
This is a self-reporting obligation. HMRC does not write to you asking whether you have started receiving rental income. The responsibility to come forward sits entirely with you.
Once registered, you will need to file a self assessment return each year by 31 January (online) or 31 October (paper), covering all your income including rental profits for the preceding tax year.
If you miss the notification deadline, HMRC can charge penalties based on the amount of tax that should have been declared. The penalty regime is:
- Unprompted disclosure (you come forward before HMRC investigates): penalties of 0–30% of the tax owed, depending on behaviour
- Prompted disclosure (HMRC contacts you first): penalties of 15–30% for careless failure, rising significantly if HMRC considers the failure deliberate
- Additional interest charges on any tax paid late
The message is clear: notify early. The longer you leave it, the worse the potential outcome if HMRC identifies the income before you declare it.
What counts as rental income
The most obvious example is a buy-to-let property let to long-term tenants. But rental income has a broader meaning in tax terms, and the notification obligation applies to all of it.
Buy-to-let: Standard residential lettings in your own name. Income is the total rent received minus allowable expenses such as maintenance, letting agent fees, insurance, and the restricted mortgage interest credit under Section 24.
Inherited property rented out: If you inherit a property and rent it out rather than sell it, you have rental income. Even if the property has no mortgage and the proceeds feel like a windfall, they are taxable.
Holiday lets: Furnished holiday lettings (FHL) have historically had their own advantageous tax rules — including full mortgage interest deduction and access to capital gains reliefs. Note that the FHL regime was abolished from April 2025 and these properties are now taxed under the same rules as standard lettings, including the Section 24 restriction.
Renting a room: If you rent a room in your main home, the Rent-a-Room scheme allows you to receive up to £7,500 per year tax-free. Above that threshold, the excess is taxable and must be declared. Even within the threshold, HMRC recommends registering for self assessment if you are already filing a return for other income.
It is also worth knowing that HMRC does not rely solely on self-reporting to identify rental income. The department receives data feeds from Airbnb, Rightmove, Zoopla, SpareRoom, and other platforms, and cross-references these against Land Registry records and submitted tax returns. If you own a property that appears on a letting platform and have not declared the income, the chances of it being identified have increased substantially in recent years.
How rental income is taxed alongside contracting income
Rental profits are added to all your other personal income — salary from your company, dividends, interest — and the total is taxed at your marginal rate. There is no separate rental income tax band.
The 2026–27 income tax rates in England and Wales are:
- Basic rate (20%): Income between £12,570 and £50,270
- Higher rate (40%): Income between £50,270 and £125,140
- Additional rate (45%): Income above £125,140
Most contractors who pay themselves an optimal salary and dividend combination will already be sitting in the higher rate band. This means every pound of rental profit is taxed at 40%.
Now layer on Section 24. Suppose your rental property generates £20,000 in rent and your mortgage interest payments are £12,000. In plain terms, your profit is £8,000. But for tax purposes, you cannot deduct £12,000 from your rental income. Instead, you declare £20,000 as income, pay 40% tax on it (£8,000), and then receive a 20% credit on the mortgage interest (£2,400). Your effective tax bill on the rental activity is £5,600 — on an economic profit of £8,000. That is a 70% effective rate on your actual profit.
This is a common and significant shock for contractor-landlords who have not run the numbers recently. The Section 24 restriction has been fully in place since 2020, but many people have not recalculated the real impact on their position. If you have not done so, it is worth doing — especially in the context of your total contracting and rental income position. Our IR35 guide also explains how contracting status affects your overall income picture.
Keeping your Ltd company and personal finances clean
One of the most common issues we see is contractors conflating their company finances and personal finances — not in terms of actual bank accounts, but in terms of understanding what is reported where.
Your limited company handles:
- Invoicing clients and receiving contracting income
- Paying your salary (reported to HMRC via PAYE)
- Paying dividends (declared on your personal SA100)
- Corporation tax on company profits
- VAT returns if applicable
Your personal self assessment return handles:
- Your salary from the company
- Your dividends from the company
- Rental income and profits
- Any other personal income (interest, capital gains, etc.)
AutoBooks manages the limited company side of this picture as standard. Your personal SA return — including rental income — is a separate obligation that sits alongside the company work. Our Gold plan at £89+VAT/month includes your personal self assessment as part of the service, not as an add-on. When we prepare your return, we handle salary, dividends, and rental income together, so the interactions are correctly accounted for and legitimate reliefs are applied.
The important point is that neither side of this can be ignored. HMRC's data-matching capability has improved significantly, and undeclared rental income is increasingly likely to be identified — whether through platform data, Land Registry checks, or HMRC's general risk-profiling work. Staying compliant on both fronts is not just good practice; it is materially lower risk than leaving gaps.
If you are unsure how to handle the self assessment process or want to understand your position before the 5 October deadline, book a free call with us and we will talk through exactly where you stand.
Managing a limited company and rental income?
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