Making tax digital cash basis accounting for landlords

Making Tax Digital is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs – meaning the end of the annual tax return for millions.

And as part of the introduction of Making Tax Digital, HM Revenue & Customs (HMRC) has confirmed that it will extend the simplified cash basis of accounting for businesses with a turnover below £150,000.

Mark Britland from Magee Gammon Chartered Accountants explains.

This expansion of cash basis accounting is likely to be welcomed, with an ounce of trepidation, by landlords, who will now be able to declare income if they have actually received it, rather than using the accruals accounting basis”.

Under the current accruals accounting system, landlords and property businesses have to take into account the income tenants should have paid as income for that year, despite not having received it yet. This means that from the 2017 – 18 tax year, which starts on 6 April 2017, thousands of additional landlords will automatically pay tax based on the difference between money they have taken in and what they have paid out, meaning that they will only be required to pay tax on the rent they have already received.

Landlords will be able to opt out of the cash basis and use Generally Accepted Accounting Practice (GAAP) accounting, by making an election on their tax return. However, this election will only take the landlord out of the cash basis for a single tax year.

In many cases, landlords may already be using a form of the simplified cash basis of accounting as already afforded to many unincorporated trading businesses, often deviating from GAAP. The change may be confusing for some taxpayers, as they may need to opt in to use the cash basis for trading businesses, and opt out of the cash basis for a property business.

As an example where a landlord has a separate property businesses, such as one letting UK properties, and another letting properties in another country, they can opt out of the cash basis for one property business and not for the other one.

If you would like further information or to discuss your business get in touch to arrange a free consultation by either calling 01233 630000 or via www​.mageegam​mon​.com, alternatively you can email mg@​mageegammon.​com.

The above does not constitute advice and should not be treated as such, as individual circumstances vary considerably.

Mark Britland – Partner at Magee Gammon Chartered Accountants