Cash basis vs Accruals basis: criteria for eligibility

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    Cash basis vs Accruals basis: criteria for eligibility

    Hello all,

    This forum is excellent - there is some very useful information for (relatively) inexperienced landlords...

    I have some questions regarding eligibility for the cash basis method of calculating income and expenses. I haven't fond the answer on here, but I would be very grateful for your thoughts!

    1. According to HMRC, "total gross receipts of a rental business (before allowable expenses are deducted) don’t exceed £15,000" (see http://www.hmrc.gov.uk/manuals/pimmanual/pim1101.htm). Gross receipts from my property are £20,000. I own 50% of the property, so only £10,000 of these receipts are mine. Can I still use the cash basis?

    2. I understand there are some 'Simpler Income Tax: cash basis" rules (https://www.gov.uk/simpler-income-ta...der-cash-basis), according to which "You can start to use cash basis if your total business income is £81,000 or less a year." This would certainly cover my gross rental income. However, are these rules for formal businesses only? My rental property is not held in a company, so I don't know if I'm eligible for this!

    Thanks in advance

    #2
    Why not use the preferred method?

    Who owns the other 50%?
    Why do you think it's two businesses rather than one business with two people involved in it?

    The Simpler Income Tax is for people who are self employed (and, generally, private landlords are not self employed).
    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).

    Comment


      #3
      Thanks for your reply! I think it suggests I should use accruals basis?

      Originally posted by jpkeates View Post
      Why not use the preferred method?

      *What do you mean by this? Do you mean the accruals basis? I'd prefer to use the cash basis because I'd prefer to avoid calculating things on a pro-rata basis if possible.

      Who owns the other 50%?

      * My sister, who is a student with 0 other income.

      Why do you think it's two businesses rather than one business with two people involved in it?

      * I don't. The rest of the self assessment form suggests that only my share of income and expenses should be included (i.e 50%); it wasn't clear if the criteria for cash basis calculations applied before or after this 50%.

      The Simpler Income Tax is for people who are self employed (and, generally, private landlords are not self employed).
      * Okay, so I think this one's ruled out then!

      Comment


        #4
        It's not an exact science, but I think you and your sister have one business with an income of £20,000.
        So you should probably use the accruals basis - which is the preferred method.

        You should both complete separate tax returns for your respective shares of the income.

        The accruals method isn't that complex (prorating is just a bit of Excel work).
        You're unlikely to be challenged even if you don't do all the fiddly stuff, to be honest, unless it materially changes the outcome.
        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).

        Comment


          #5
          Thanks for your help!

          Comment

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