HM Revenue and Customs (HMRC) has this week launched a 12-week consultation named ‘Making Text Digital’.

One of the features of the consultation is a measure which the authority says is aimed at ‘simplifying tax rules’ for smaller landlords.

The Government is proposing to extend the cash basis for trading income to unincorporated property businesses.

If introduced, the new system would mean that landlords with annual business income below £10,000 will not be required to keep their business records digitally or provide quarterly updates to HMRC.

The cash basis calculates taxable profits based on the business’ cash flows – its ‘cash in’ and ‘cash out’. 

Income is only recognised when it is received and expenses when they are paid. This is unlike the accruals accounting basis which recognises income when it is earned and expenses incurred in earning that income. 

Landlords using the cash basis will therefore not be required to declare income until it is actually received, meaning that tax on the profits of the property business would not need to be paid until the rent has been paid.

HMRC says the cash basis should make budgeting for tax easier and enable landlords to better manage their cash flows. 

If the measure is approved after the consultation period, draft legislation is expected to be published this autumn with an introduction as part of the Finance Bill planned in 2017.

HMRC says that the cash basis option will only be available to the simplest property businesses, which it predicts will account for around 2.5 million businesses.

“Removing small firms and the self-employed with modest turnovers altogether from the proposals will now mean that in addition to the 1.6 million small businesses and landlords that were already excluded, as a result of these changes announced, a further 1.3 million small firms and landlords will no longer be in scope,” commented Mike Cherry, FSB National Chairman. 

“This means that half of the UK’s 5.4 million small businesses will not be affected by quarterly tax reporting. The expansion of cash accounting, a longer lead-in time for implementation and the offer of direct financial assistance will also help,” he added.

The tax changes for property businesses are one of six consultation documents set out as part of the Making Tax Digital initiative.

The simplified cash basis consultation can be viewed here and an overview of all six consultations can be viewed here. 

The consultation period closes on November 7 and responses can be emailed to: [email protected].

*Marc Da Silva is away on annual leave until August 22nd. Conor Shilling will be undertaking editorial duties in his absence. Please send any press enquiries to [email protected]