HMRC are considering introducing an optional cash based accounting scheme for landlords to give them the choice of using the simplified accounting method.
What is changing?
Currently property businesses are required to follow the accountancy rules set out by Generally Accepted Accounting Practice (GAAP) that recognise income earned and expenses incurred in the period, whether or not the amounts have actually been received or paid.
This can be a problem for landlords as many tenants often pay rent in arrears, therefore the plan is to give landlords the option to use cash based accounting.
This method of calculating tax works on a cash in cash out basis. This means tax is only accounted for on income when it is received and expenditure when it has been paid.
Who does it affect?
Over 2.5 million property businesses, both individuals and partnerships of individuals with unincorporated property businesses, as well as their agents and representative bodies.
It is designed with the simplest property businesses in mind – those with small numbers of properties or another main source of income.
Landlords with income below £10,000 will not be mandated to keep their business records digitally or provide quarterly updates to HMRC.
