HMRC internal manual

Property Income Manual

PIM2210 - Deductions: main types of expense: salaries and wages of employees

Salaries and wages that a landlord pays to employees engaged full time or part time on managing the land or property within their rental business are allowable. This includes any normal pension contributions they may pay for their employees. But unusual or lump sum pension contributions may not be allowable.

A deduction can’t be claimed for salaries and wages that were not paid during the tax year unless they were paid within nine months after the end of it. This is a special rule that only applies to pay. The relief isn’t lost if the salaries or wages are paid late; in that case the deduction is given in the tax year when the payment is actually made. See sections 1288 and 1299 of the Corporation Tax Act 2009 for corporation tax payers and sections 36 and 37 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA05) - applied to property businesses by sections 272 and 272ZA - for income tax payers.

Sometimes an employee is engaged partly to manage the rental business property and partly to complete work outside the rental business. Here a fair and reasonable split has to be made which takes into account all the facts; only the part of the wage or salary properly attributable to the rental business duties is allowable as a deduction in computing the rental business profit or loss.

A landlord can’t deduct anything for the time they spend themselves working in their own rental business. They can deduct any wages or salaries they pay to their spouse, civil partner or other relations for working in the rental business provided the amounts paid represent a proper commercial reward for the work done. The spouse, civil partner or relative will be taxable on their earnings if their income is large enough.

The landlord will need to operate the PAYE and NIC systems on payments to employees.