Britain’s 900,000 landlords could be offered “cash basis” tax calculations for their buy-to-let property businesses in future. In the UK it is estimated to have around 1.4m properties owned by private residential landlords, and one in five homes are now buy-to-let.

A series of tax consultations for HMRC’s Making Tax Digital (MTD) will focus on the option for buy-to-let landlords to be taxed on a cash basis, which HMRC claims will benefit small unincorporated property businesses by simplifying the tax rules.

A 12-week consultation will now be held into Making Tax Digital (MTD) as part of a seven consultation package that focuses on measures aimed at simplifying the tax rules. The cash basis will, if introduced, give landlords the choice of using a simplified tax accounting process, which is currently only available to some unincorporated traders.

Those landlords with total annual business (rental) income below £10,000 will not be required to keep their business records digitally or provide quarterly updates to the planned HMRC digital returns, as will be the case with larger unincorporated and incorporated landlords

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In the Budget 2015, the government set out its vision for a digitally transformed tax system, launching its Making Tax Digital Roadmap. This set out the vision for how this would be achieved, claiming to make HM Revenue and Customs (HMRC) one of the most digitally-advanced tax administrations in the world by 2020.

Because of the scale of these changes HMRC has published 6 consultation documents, each focusing on specific customer groups or specific elements of the Making Tax Digital reforms, a collection of consultations around specific elements of the Making Tax Digital (MTD) reforms.

The government says it is committed to reducing burdens for taxpayers and building a transparent and accessible tax system fit for the digital age. The consultation period will run until 7 November 2016 with the intention of publishing draft legislation in autumn 2016 for introduction in the 2017 Finance Bill.

Through using the cash basis, the move towards quarterly updates required by MTD would become more straightforward for smaller landlords.

As the MTD tax system is introduced, increasingly most businesses including the self-employed and landlords will need to use software or apps to keep their business records, and to update HMRC quarterly.

The cash basis option will only be available to the smallest property businesses, such as individuals and partnerships where all partners are individuals.

HMRC claims that “the option to use the cash basis will make budgeting for tax easier for landlords allowing them to better manage cashflows”.

HMRC is working on the estimate that up to 2.5m property landlords will use the simplified cash basis, under which landlords will not need to declare income until it is actually received. This means that any tax on the profits of the property business would not be paid until the rent is received.

Alternatively, landlords opting to use the accruals based accounting system will have to include the income tenants should have paid as income for that year, despite not yet having received it.

Using the cash basis, as is the case now for individuals with property business income, the tax year will run from 6 April to 5 April each year. To calculate their property business taxable income under cash basis, landlords would take the difference between the rental income actually received, less expenses actually made in the tax year.

Making Tax Digital consultations

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