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Cash Basis

02/08/2018 08:18:58
Did you know that as of 2017-18, cash basis is the default method of reporting profits or losses of a property business for most individuals with cash receipts for the tax year of £150,000 or less?

The profit or loss to be reported under the cash basis is found by calculating:
The total amount of receipts that the business received during the tax year,
less the total amount of expenses that the business paid during the tax year.

In simple terms you only need to show money when it comes in or goes out. You don't need to account for debtors or creditors.

If you think it's more appropriate for you to continue using traditional accounting, when the income is earned and when the expenses are incurred, you must let us know this on your tax return. Please see Property income manual 1090

When you enter or leave the cash basis scheme, we use transitional rules to adjust for accrued income and expenses and payments in advance. This makes sure that all income and expenditure is accounted for only once.

There is some excellent guidance, including examples in our Property income manual 1096. Please take a look.

If you have any questions, please ask us below. Please remember not to include any personal details. Thanks!

This message was edited 1 time. Last update was at 02/08/2018 14:40:09

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Cash Basis

06/09/2018 14:45:55
I have always used accruals-based accounting for my FHL, principally because my bank charges and mortgage interest expenses were more than the £500 pa limit associated with cash basis accounting.
Prior to FY17/18 many of my customers dealt with me directly, so they were invoiced separately for deposits and balances, with income being entered in the income ledger when these separate invoices were raised. In FY17/18 I started using online agencies that took and held guest payments at the time of booking; accordingly, income was accounted for at the time of booking, and the money held by the agencies accounted for as a trade debtor until payout. As a result in FY17/18 my gross rental income was higher by ~£10k more than normal, owing to the combination of balance payments received in year from direct bookings, and advance agency bookings for FY18/19 accounted for at the time of booking. I could recalculate the entire year's books on a cash accounting basis, but this would result in a significant lowering of net profit than when using accruals accounting. Whilst this might appear to be good news (on the face of it), anticipating a greater net profit, I had used the extra profit for pension contributions prior to 5 April 2018.
I fear that if I recalculate FY17/18 on a cash accounting basis, my profit for the year will be less than my pension contributions. Can I elect to continue to use accruals-based accounting for FY17/18, and switch to cash-accounting for FY18/19?
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Re:Cash Basis

06/09/2018 20:25:52
Hello, thanks for your question.

As of 2017-18, the cash basis is the default method of reporting profits or losses of a property business for most individuals with cash receipts for the tax year of £150,000 or less.

The profit or loss to be reported under the cash basis is found by calculating: The total amount of receipts that the business received during the tax year, less the total amount of expenses that the business paid during the tax year.

In simple terms you only need to show money when it comes in or goes out. There is no need to account for debtors or creditors.

If you believe it is more appropriate to continue using traditional accounting, e.g. when the income is earned and when the expenses are incurred, you must make an election on your tax return.

Please see this guidance on Gov.uk which explains when this is appropriate, and also the tax return notes.
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Cash Basis

21/12/2018 10:39:16
I know I am allowed to use AIA for the furniture costs for my FHL. But Can I use AIA with Cash Based Accounting?
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Re:Cash Basis

21/12/2018 13:04:54
Hi

Thank you for your question. You would be able to claim AIA for furniture costs as long as you are not using the cash basis. However, under the cash basis deductions are allowed for capital expenditure with extensive exceptions. These are listed under
PIM1095
As this allows relief on certain capital expenditure, capital allowances are not available when the cash basis is used.
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Cash Basis

10/05/2019 13:51:15
If I use cash basis accounting for the rental account. Do I have to keep using it all the time or I am use whenever I like.
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Re:Cash Basis

13/05/2019 07:13:10
Hi,

Thanks for your question.

Cash basis is the default position for reporting profits or losses for income from property.

This guidance explains when you can or should elect to use traditional accounting:

Property Income Manual 1092

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