Cash basis will become the default option for calculating taxable profits.

It’s stated that landlords will be able to use the cash basis rather than generally accepted accounting practice (GAAP) as the default method of calculation, ‘unless a landlord opts out or has rental receipts for the business in excess of the threshold in which case they will continue to use GAAP’. It is stated that the measure will have effect for the ‘tax year starting 2017 to 2018 onwards’.

The calculation of taxable profits for property business income is calculated in accordance with GAAP and is adjusted for income tax purposes. The proposed change will see the cash basis being the default option where the cash basis receipts of that business don’t exceed £150,000.

The HMRC notes highlight that landlords ‘will continue to be able to opt to use GAAP to prepare their profits for tax purposes’. Landlords with more than one property business will be able to choose the ‘cash basis or GAAP for each of their property businesses’.

It is also highlighted that landlords who have ‘overseas property businesses alongside a UK property business will be able to make the decision about whether using GAAP is more appropriate for either’. It is also stated that landlords ‘other than spouses or civil partners who jointly own a rental property will be able to decide individually’.

In addition, the note highlights that:

  • capital allowances are not available
  • landlords will be able to claim the upfront cost of capital items used in the business
  • interest expense will be treated consistently between those using the cash basis and those using GAAP.

Article from ACCA In Practice