12th
Aug 2016
The HMRC will be trying to 'persuade' over 900,000 landlords to read their MTD (Making Tax Digital) consultations report and switching to the cash basis tax system. According to the HMRC this makes it far easier as the system offers simpler tax rules and options.
The twelve week consultation MTD has recently been published and is part of the HMRC's strategy of making the tax rules far easier for unincorporated businesses. This offers buy-to-let landlords the cash basis tax rules which has just been available for unincorporated traders.
Those landlords with a turnover less than £10,000 will not have to keep their records digitally and will not have to supply updates to the HMRC every quarter, however they can still opt for the cash basis.
However there are signs that the launch date is going to be later than hoped for by at least a year as the HMRC is asking for a report on the impact of the delay.
The government intends to publish draft legislation by the end of Autumn 2016 which will hopefully be introduced into the Finance Bill 2017.
All landlords above the £10,000 limit who opt for the MTD cash basis tax system will have to provide quarterly updates for the HMRC, however this will provide them with greater flexibility and a far simpler tax system.
The MTD will require landlords to use software or apps to store their digital records for the quarterly updates. Only small property businesses can sign up such as individuals, or partnerships where all partners are individuals.
HMRC states that "the option to use the cash basis will make budgeting for tax easier for landlords allowing them to better manage cashflows", they estimate that 2.5 million businesses will opt into the system.
The cash basis (cash accounting system) allows landlords to only declare their income which has been 'banked' ,so that any tax on profits will not have to be paid until the rent is actually received.
Mike Cherry, chairman of a national group of businesses, said: "Removing small firms and the self-employed with modest turnovers altogether from the proposals will now mean that in addition to the 1.6m small businesses and landlords that were already excluded, as a result of these changes announced, a further 1.3m small firms and landlords will no longer be in scope.
"This means that half of the UK’s 5.4m 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."
The closing date for comments is 7 November 2016, responses should be sent to propertycashbasis.consultation@hmrc.gsi.gov.uk
The Simplified cash basis for unincorporated property businesses consultation document is
here.
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