Small Buy-to-let Landlords: HMRC offers simplified tax rules.
HMRC’s 12-week consultation into Making Tax Digital (MTD) published 15th August focuses on one of the measures aimed at simplifying the tax rules for unincorporated property businesses, giving landlords the choice to use the simplified cash basis, currently only available to some unincorporated traders. Landlords with annual business income below £10,000 will not be required to keep their business records digitally or provide quarterly updates to HMRC, but they will still be able to use the optional cash basis. Through using the cash basis, the move towards quarterly updates required by MTD would become more straightforward, giving landlords additional flexibility.
As part of MTD the tax system will become increasingly digital and most landlords will need to use software or apps to keep their business records, and to update HMRC quarterly. The cash basis option will only be available to the simplest property businesses, such as individuals and partnerships where all partners are individuals. HMRC claims that ‘the option to use the cash basis will make budgeting for tax easier for landlords allowing them to better manage cashflows’. Under the cash basis, landlords will not need to declare income until it is actually received, meaning that any tax on the profits of the property business would not be paid until the rent is received. Landlords opting to use accruals accounting will have to include the income tenants should have paid as income for that year, despite not yet receiving it.