From 2017/18 most private landlords will be expected to calculate their rental profits using cash-basis accounting.

This should make preparing rental income and expenditure accounts much easier but are there any drawbacks?

One drawback would be as follows: If you redecorate the property and receive a bill for £5,000 in March 2018 but do not pay the bill until 20 April 2018 then you will not get tax relief for this expenditure in 2017/18!

Do you have to apply the cash-based accounting?

If your properties are held within a company then the cash basis does not apply

If you are a private landlord and the rent received exceeds £150,000 then the cash basis cannot be used

And finally, you could opt out of the cash basis by making an election on your tax return form

Bad Debts

If you use the cash-based accounting then you will automatically obtain relief for bad debts because you are only accounting for rent received.

If you use normal accounting rules then you must have taken all reasonable steps to recover the overdue rent and be certain that you will not be paid before you can deduct the bad debt as an expenses.

Summary

From 2017/18 the cash basis should make accounting for rental profits easier but be careful that you do not delay receiving tax relief on expenditure due to timing differences between incurring the expenditure and paying for it.

If you have any questions in respect of the above, then please do not hesitate to contact our tax experts by sending an email to kevin@kwaccounting.com