Cash Accounting: A Panacea for Landlords?
When considering the MTDfB regime with regard to landlords HMRC had this to say “Almost all respondents thought (respondents to the original consultations) that some property businesses should be allowed to use the cash basis, pointing out that it is a natural fit with how many landlords carry on their business”.
The result was “as a result of the consultation responses, the government will move ahead with the introduction of a cash basis for unincorporated property businesses”
So far so good you’re thinking and not only are the government going to legislate for the cash basis for unincorporated landlords but they are also going to raise the level to £150,000.
So it will no longer be that landlords themselves use the cash basis on “an informal basis” they can now, subject to the £150,000 limit, record all expenses and income based on the date of actual receipt and thus be only ever taxed on actual received net income. Furthermore, it has sensibly been accepted that the receipt of a deposit will not feature as income until the “the security deposit is legally the landlord’s property”
So happy days for one and all. Questions asked, answers given, answers listened to and decisions taken based on those responses.
But that is actually NOT the case at all.
If a landlord actually hands over the day to day admin of the property to a letting agent as indeed every one of my landlord clients does then it not about when they landlord gets paid and pays out that transactions are to be recorded but on the date that the agent actually receives and pays out on behalf of the landlord. This little bomb was delivered as follows:
“The government’s view is that, rental income and expenses under a cash basis of accounting should be regarded as received and paid at the dates of receipt and payment by the letting agent on the landlord’s behalf. This is because letting agents are acting in an agency capacity for their landlord clients and will therefore be collecting rent and paying expenses in the place of their landlords.”
Is this genuine cash accounting for a landlord? No it most certainly is not and on reviewing landlord clients I note that the vast majority do not receive statements detailing movements monthly or quarterly in fact the bulk are 6 monthly often received a couple of months after the period they are reporting on.
So if the landlord is to report quarterly then they will have to detail the actual net receipt of monies via the agent on the date that it actually paid to them but then when they have the analysis from the agent all manner of adjusting entries and dates will have to be made which in itself is bad enough BUT if you only get your information from the agent twice a year then this supposedly easy option now is a whole new ball game is it not?
Not exactly my definition of Cash accounting and I doubt those who responded positively to the consultation will think so either and how about sorting out the Interest disallowance.