HM Revenue and Customs (HMRC) wants to know what landlords think about changing the way they calculate profits for tax.
Most property businesses pay tax on rents less expenses due in a tax year – a process called accruals.
Accrual accounts involve sometimes sharing income and expenses over two tax years.
For instance, if buildings insurance is paid for a calendar year, the payment is adjusted to cover a tax year by apportioning the cost for January to March (3/12) for one tax year and April to December (9/12) for the next.
HMRC is thinking about allowing landlords to pay tax on rents received less expenses paid in the year – which is drafting accounts on a cash basis.
That would mean an insurance payment made in January would go into the books for that month rather than splitting the amount over two years.
Depending on the underlying transactions, accrual and cash accounting can different profit results for the same tax year.
An online consultation tool asks landlords and their professional advisers four simple questions about the new measure.
“We recognise that many individuals with property business income do not have complicated affairs and preparing accounts using the traditional accruals accounting basis is only required to meet legal requirements,” says HMRC.
“Preparing these accounts can be time consuming and costly for many landlords. With this in mind, HMRC are seeking your views on whether the proposed cash basis would be helpful.”
HMRC asks if landlords would like to change to cash basis accounting, whether a limit should be placed on turnover to use the process and how landlords consider the proposal could affect their businesses.
The proposal is for unincorporated property businesses only.
More details about the measure are available online in a detailed consultation document.