How should Landlords report their lettings income?

  • by Carole Jordan
  • 17 Jul, 2017
Landlords reporting their lettings income cash basis
Landlords will be expected to use Cash Basis Accounting from 2017/18.  
So what does that mean for your rental property accounts and tax?

How should Landlords report their lettings income?

Previously Landlords were required to report rent and payments due in the year rather than the cash received and paid out. Many used the cash basis rather than following these strict accounting rules. However, from 2017/18 landlords must, by default, use the Cash Basis Accounting method. Simpler for some, more confusing for others. If you have multiple properties you must use the same basis for all properties, the only exception to this rule is if you own properties outside of the UK; then you may use a different basis.

What is Cash Basis Accounting?

Cash Basis works in a simpler way than the accrual basis, making it easier to establish your taxable profit. It works on the basis that rents received less expenses paid are equal to the profit made during the course of the tax year. It allows you to ignore “bad debts” and only declare the income that has been received.   For more information see HMRC's Income Tax simplified guide .

Are there any downsides to Cash Basis Accounting for Landlords?

One downside to this method is that you can only claim expenses that you have paid for. So if you’re billed for work being completed on one of your properties but you don’t pay until the new tax year, then you cannot claim the expenses until the following tax year. Overall the Cash Basis is fine for landlords with only 1 or 2 properties with very few expenses. However opting for a normal basis may suit you better if you have more properties with more expenses.

Are there any Landlords excluded from Cash Basis Accounting?

You can opt out of Cash Basis on your tax return, and the rule doesn’t apply to those of you who own property through your company. The only other exception to the cash basis rule is if your rent received exceeds £150,000. If you jointly own a property you should only consider your half of the rents when working out if you have exceeded the £150,000 limit. 

These rules were due to be passed into legislation by Parliament in the Finance Act 2017. Due to the General Election this is one of the changes which has been delayed until the autumn. However, we are told the provision will be backdated to 6th April 2017 (the beginning of the tax year). 

If you’re looking for more advice on this change then please get in touch, you can reach us on: 01273 882200. As qualified tax advisors we can help you understand and implement this method of Accounting.

All details above were correct at the time of publishing - for more up to date information please get in touch .

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