Sarah Bradford explains how landlords can secure tax relief for capital expenditure when they prepare their accounts using the cash basis.
The cash basis is the default basis of accounts preparation for landlords with rental receipts (calculated on the cash basis) of £150,000 a year or less.
Where a landlord is eligible for the cash basis, this is generally preferred as it is simpler to apply than the traditional accruals basis. Landlords who are eligible for the cash basis but who prefer to use the accruals basis must elect to do so.
The cash basis works on a ‘cash in, cash out’ basis; receipts are recognised when the income is received, and expenses are recognised when paid. There is no need to match income and expenditure to the period in which it is incurred; nor is there any need to take account of debtors and prepayments or of creditors and accruals.