Sarah Bradford explains how landlords using the accruals basis can obtain relief for capital expenditure.
Although the cash basis is the default basis of accounts preparation for most landlords with rental income of £150,000 a year or less, some landlords continue to prepare their accounts using the accruals basis. This may be because they do not qualify for the cash basis, as would be the case if their annual rental income is more than £150,000, or because they simply choose to prepare accounts using the accruals basis.
The rules for obtaining relief for capital expenditure differ depending on the way in which the accounts are prepared. Where the accruals basis is used, capital expenditure cannot be deducted in calculating profits, as is the case for certain types of capital expenditure where the cash basis is used. This is subject to an exception for the cost of replacement of domestic items in furnished lets. Instead,