Are you finding it tough to decide between cash basis or accruals basis for your rental property accounts preparation? It’s not just you, many small business owners face the same challenge. Let’s break it down together.

What’s the Difference?

First, let’s get familiar with these terms:

1. Cash Basis:

Nature: Simple and straight to the point, this method accounts for money as it comes in and goes out.

Rental Income: Counted when received, not when it’s due.

Expenses: Deducted when paid.

Eligibility: Mostly for unincorporated landlords, but with exceptions.

2. Accruals Basis:

Nature: More traditional, matching income and expenses to the periods they relate.

Rental Income: Recognised when it’s due.

Expenses: Deducted when due.

Eligibility: Must be used if the cash basis is not suitable.

Still confused? Imagine the cash basis as dealing with physical cash in your pocket. If you haven’t received or paid it, it doesn’t count. Accruals basis, on the other hand, is like promising to pay. Even if the cash isn’t in your pocket yet, it still counts.

Who Can Use the Cash Basis?

You can use the cash basis if you don’t fall into these categories:

  • Run by a company, limited liability partnership, trustees, or a partnership with a corporate member.
  • Receipts over £150,000 for the tax year.
  • Joint property business with a spouse or civil partner, and the other person is taxed under accruals basis without a Form 17 election.
  • Business premises renovation allowance claimed with a balancing charge in the tax year.
Advantages of the Cash Basis
  • Simplicity: It’s much easier to follow.
  • Cash Flow: You have the money before the tax is due.
  • Bad Debts Relief: It’s automatic.
  • Capital Expenditure Rules: More straightforward.

So, what’s best for you? Cash basis or accruals basis? Reflect on your business’s nature and size, consider local regulations, and don’t hesitate to seek professional advice tailored to your needs.



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Any questions?

If you’d like a meeting or a video call to discuss this, please get in touch with your favourite Liverpool accountant