Traditional accounting or Cash Basis ....

[Singhno1]

I have a Self Assessment to fill. In the section where they ask about Traditional Accounting or Cash Basis Which one shall I choose.

I have one Studio flat BTL for which I receive rent and expenses earning below £150k of course. I also have a job.

1) What option to choose here?

2) What factors consider for my choice?

3) Whether it is a matter of legal requirement to choose the right one?

I am confused because I have heard/read that if one accept advance rent payment that also goes on to the next financial year then under cash basis you cant spread it to next tax year to lower the tax liability. In tis case am I ok to choose traditional accounting every year.

If there are any other factors tips I need to be aware of please help me choose.

[Gordon999]

I expect your SATR tax return covers one year period from 6 April 2019 to 5 April 2020 for 12 months rental income and expenses .

You should have kept records showing date when you received rent and when you paid expenses..
Traditional or cash is a tricky question ? If you received a bill in mid March , it is reported in this year's tax return ( traditional) or if you paid the bill 6 April or later , it falls into in next year's return ( cash ) . So better to choose traditional.

Best to make sure you have included rental income and expense bills for 12 months.

[Singhno1]

Thanks Gordon,

I do keep records and as all the payments bar one go via the bank its easy to see/keep records. Luckily any advance payments made have been within the year of the financial years including the rent on 13th Mar.

Last year(2018-2019) I received rent a month in advance ie for period of 3rd Apr to 2nd May what should have I done for this. I chose Traditional. But didn't spread it to next financial year. Was that still ok.

[pebblepebble]

If you chose traditional you should have put it in 19/20.

[Gordon999]

If you are paid rent in advance and the period extends into next financial year, I would apportion the rent after 5 April and enter the part sum in next year's account.

[Singhno1]

So if I am choosing Traditional and get paid say £100 on 3rd of Apr rent in advance then I could split it. For eg say rent is £100pcm paid on 3rd Apr then £100x12 / 365 = £3.28 x 3(3rd, 4th and 5th apr) = £9.86 for current financial year and £3.28 x 27 = £88.56 in to the next financial year.

How about any expense like insurance or ground rent to the free holder. If I pay that in advance on the 1st of Apr am I supposed to spread that.

If I left it in the current financial year is that ok as well, or is there a law stipulating I need to spread it appropriately. IE I am not going to be penalised for not doing so.


Correct me if I am wrong with my statement below.

I suppose which ever I choose I end up paying the same tax if nothing else changed in my situation.

[Gordon999]

I believe you have to ensure there is one annual insurance bill in the annual expense.

If you paid insurance bill "in advance" ( say - due date on 1st April) , you have to treat it as covering from 1st April to next Mar 31st.

So for the tax year 2019-2020, you would include insurance bill, due at 1st April 2019 .

The insurance bill due at 1st April 2020 will be reported in Tax Return ( 2020-2021 ) .

[Singhno1]

I believe you have to ensure there is one annual insurance bill in the annual expense.

.

Thanks.
Personal circumstances prevents me to pay lump sum for now. I used to, then things changed. I will keep the advice payments in mind for the future.

[Codger]

I prefer cash basis as I do it myself and not want to spend time splitting bills between tax years. In the end the tax will be the same I think.