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HMRC launches landlord tax consultation

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: propertycashbasis.consultation@hmrc.gsi.gov.uk.

*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 press@landlordtoday.co.uk

  • icon

    Never mind consulting about digital returns - it's all completely irrelevant until they consult on Clause 24!

  • icon

    Oh come on. This is poor journalism and inaccurate to boot.

    First, HMRC, whose discussion documents I have actually read, are proposing to apply this onerous quarterly digital reporting burden to anyone with a GROSS INCOME or TURNOVER of £10,000 a year, not just to the "business income" of £10,000 stated here. The actual financial threshold is therefore much lower than this article says, and will ensnare far more people, because it takes revenue, or in the case of landlords total rentals, rather than actual profit or net income after all costs and deductions have been included. Put that way the scope of this dragnet becomes clear. It is designed to capture almost all self-employed workers (how many plumbers or gardeners will have turnovers of less than £10,000 a year, implying perhaps only £5,000-7,000 net income from their work after costs?). It will also capture even the landlord who has moved away with work and receives gross rent of £850 per month on his house. In other words, these proposals are very far from being a boon to the little guy but are a direct assult on him (the concession on cash-basis accounting is trivial and just a crude attempt to sweeten a very bitter pill).

    Second, maintaining digital accounts will become a legal obligation for all these people, as will checking them in with HMRC every 12 weeks. This is therefore going to place a huge new burden on your average local tradesman or small-time accidental landlord who in many cases won't hitherto have ever used accounting software. Gone will be the days when a simple spreadsheet or notebook was sufficient: HMRC are going to impose a requirement to buy and use sophisticated accounting software on large numbers of people who don't own companies, have no accounting or book-keeping expertise and who have never before needed to worry about such things because their operations are at such a low level.

    This is actually an attempt to use IT and the law in combination to force lots of the "little people" to maintain a much closer and tighter relationship with HMRC and so shake down even more tax out of them, all of this, of course, while governments continue to allow major multi-national corporates who game the tax system to get away with it.

  • Paul Friend

    From my limited knowledge I agree with Johns comments it is a system for HMRC to place closer and less time consuming inspections on the sole trader, ensuring they gain as much tax as possible.


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