Tax on rent even if it's not been received?

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    Tax on rent even if it's not been received?

    I've just been talking to my accountant and he says the government have come up with the idea that landlords could, in the future, be taxed on rent whether it's been paid or not. So, if the rent is £6k pa and the T only pays £1k the landlord pays tax as if the T had not got into arrears. Does anyone know anything more about this?

    #2
    Moderator - can you please move my post to the correct section? thank you.

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      #3
      That used to be the case until recently, and is still the case for companies, and if rental profits exceed £150k.

      Under traditional accounting, rental income is recognized when it becomes due.

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        #4
        In the past I recorded rent due in full but unpaid as a bad-debt under other expenses.

        And then if I ever collected arrears later .. (I did!!..) as additional rental income.

        Dunno if this was "correct".. but seemed fair...
        I am legally unqualified: If you need to rely on advice check it with a suitable authority - eg a solicitor specialising in landlord/tenant law...

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          #5
          Originally posted by leaseholder64 View Post
          That used to be the case until recently, and is still the case for companies, and if rental profits exceed £150k.

          Under traditional accounting, rental income is recognized when it becomes due.
          Do you mean rent was counted as paid even if it wasn't, until recently, until when?

          Recognised by who? HMRC? And do you mean it's counted as paid when it's due whether it's paid or not?

          Sorry to be a bit thick here

          If the gov bring this in then I (we) might end up paying tax on mtg interest and tax on income that hasn't come in. Am I missing something here? - apart from a brain cell or two

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            #6
            Originally posted by theartfullodger View Post
            In the past I recorded rent due in full but unpaid as a bad-debt under other expenses.

            And then if I ever collected arrears later .. (I did!!..) as additional rental income.

            Dunno if this was "correct".. but seemed fair...
            Ah! took me a while to think about that, but I get it now. However, if a landlord is claiming UC the MIF would be adversely affected, wouldn't it?

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              #7
              It depends on how you account.

              If you use the cash basis, you account for income as it's received and expenditure as it's incurred.
              If you use the accruals basis, you account for income when it's due and the same with expenditure (which has to be amortised in some cases).

              But you simply include the shortfall as a bad debt provision until you decide it's totally uncollectable.
              And if you write off the bad debt provision that should be a loss.
              When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
              Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

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                #8
                Originally posted by Berlingogirl View Post
                Do you mean rent was counted as paid even if it wasn't, until recently, until when?

                Recognised by who? HMRC? And do you mean it's counted as paid when it's due whether it's paid or not?(
                Since 2013 for unincorporated landlords with gross rent less than £15k. From 2017 with rental income less than £150k. Companies (e.g. special purpose vehicles) still have to do it this way.

                "Recognized" means when the money is when the transaction is deemed to have take place, for accounting purposes.

                If you were issuing invoices it would be when the invoice was issued or dated.

                E.g. see https://www.leaders.co.uk/articles/a...-for-landlords

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                  #9
                  if this is true then we may as well give up - what about all the months when our tenants are in occupation and dont pay ?

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                    #10
                    Originally posted by alice123 View Post
                    if this is true then we may as well give up - what about all the months when our tenants are in occupation and dont pay ?
                    You create a bad debt provision for the money owed.

                    More to the point, you take steps to make sure ensure that this doesn't happen.

                    When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                    Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

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                      #11
                      I would declare only the rent money which has been received by me as "rental income".

                      Counting "unpaid rent as rental income " seems no different to "cooking the accounting records " for the little BTL landlords.

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                        #12
                        Originally posted by Gordon999 View Post
                        I would declare only the rent money which has been received by me as "rental income".

                        Counting "unpaid rent as rental income " seems no different to "cooking the accounting records " for the little BTL landlords.
                        The point is that HMRC would be counting unpaid rent as paid, not the landlord

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                          #13
                          Originally posted by jpkeates View Post
                          You create a bad debt provision for the money owed.

                          How does one do this?

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                            #14
                            Firstly I think this whole thread is based on confused information. If the OP is using a company, it only reflects what has always been the case. If not a company, the recent trend is in the opposite direction.

                            However, creating a provision for bad debt has no impact on taxation. Only when you stop pursuing the debt are you likely to be able to claim if for tax: https://www.gov.uk/hmrc-internal-man...anual/cfm41040

                            In the case of an individual, the concept that is most likely to apply is a doubtful debt, but that has to be one that is almost certainly never going to be recoverable: https://www.gov.uk/hmrc-internal-man...anual/bim42701

                            Simply recording a bad debt provision is a way of showing that the business is less financially secure than the normal accounting rules would imply. Normally a debt owed to it is considered an asset of the business.

                            Incidentally, if traditional accounting is applied, for an individual, only about half a rent payment due on about the 20th of the month would actually be treated as being income.

                            Comment


                              #15
                              Once the rental tenant stops paying rent, you want him/her to leave without damaging the flat or its contents asap . And you want to find a new tenant if you have monthly mortgage payments to service.

                              So you would accept the debt ( rent arrears ) is non-recoverable immediately as the chances of getting the rent arrears paid are virtually Nil after the tenant moves out and does not leave any next address.

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