Cash Basis Accounting for Property
Cash basis accounting is a simpler way of working out your taxable property profits. Instead of tracking invoices, debtors, creditors, and year-end adjustments, you simply record money in and money out. HMRC introduced it specifically to ease the record-keeping burden for smaller property businesses.
Most property landlords can use cash basis accounting, and it's the default method for Making Tax Digital. This guide explains how it works, when income and expenses are recognised, and who can use it.
What cash basis accounting means
Cash basis accounting means you work out your taxable profit by:
- Adding up all property income you received during the tax year
- Adding up all allowable expenses you paid during the tax year
- Taking expenses away from income to get your profit
You don't need to worry about:
- Raising invoices or tracking bills
- Managing debtors (rent owed to you) or creditors (amounts you owe)
- Matching bank transactions to paperwork
- Prepayments or accrual adjustments at year-end
This approach keeps record keeping straightforward. You're simply tracking actual money movements, not accounting for transactions that haven't yet been paid.
When income is recognised
Under cash basis accounting, rental income is recognised when you receive it, not when it's earned or invoiced.
Examples:
| Situation | When recognised |
|---|---|
| Rent paid by bank transfer on 1 May | 1 May (date received) |
| Rent paid in cash on 15 June | 15 June (date received) |
| Rent for July received early on 28 June | 28 June (date received) |
| Tenant owes £1,000 rent but hasn't paid | Not recognised until paid |
If you use a letting agent: Rental income is recognised when the agent receives payment from the tenant, not when the agent later transfers net funds to you. This prevents timing distortions where agents hold money for several days or weeks before remitting it. See Recording income from letting agent statements for details.
When expenses are recognised
Expenses are recognised when you pay them, not when you incur them or receive an invoice.
Examples:
| Situation | When recognised |
|---|---|
| Insurance paid by direct debit on 3 April | 3 April (date paid) |
| Repair invoice dated 10 May, paid 25 May | 25 May (date paid) |
| Annual service charge paid upfront on 1 April | 1 April (full amount recognised immediately) |
| Letting agent fee deducted from rent on 15 June | 15 June (date deducted) |
For guidance on what expenses are allowable, see Allowable expenses.
Cash basis vs traditional accounting
Traditional accounting (also called accruals accounting) recognises income when it's earned and expenses when they're incurred, regardless of when money actually moves. This requires tracking invoices, debtors, creditors, prepayments, and accruals.
Comparison:
| Feature | Cash basis | Traditional accounting |
|---|---|---|
| Income recognised | When received | When earned |
| Expenses recognised | When paid | When incurred |
| Invoices and bills | Not required | Must track |
| Debtors and creditors | Not tracked | Must track |
| Year-end adjustments | Minimal | Prepayments and accruals required |
| Complexity | Straightforward | More complex |
Why cash basis is simpler:
Traditional accounting was designed for larger businesses with complex operations. For most landlords, it adds unnecessary complexity:
- No need to raise invoices or manage bills
- No debtors or creditors to track
- No matching of bank transactions to paperwork
- No prepayment or accrual calculations at year-end
Cash basis removes all of this. You simply record money in and money out, which keeps Making Tax Digital straightforward and far less error-prone.
See HMRC's guidance on cash basis accounting for the official definition.
Who can use cash basis
You can use cash basis accounting if your total UK property income (before expenses) is £150,000 or less in the tax year.
What counts towards the £150,000 threshold:
- Rental income from all UK properties
- Income from furnished holiday lettings (FHL) in the UK
- Other property receipts (premiums, reverse premiums, etc.)
What doesn't count:
- Foreign property income (separate rules apply)
- Expenses or costs
If you have multiple properties: Add together the gross income from all your UK properties. If the total is £150,000 or less, you can use cash basis.
If you have both UK property and UK FHL income: You must use the same basis (cash or traditional) for both. You can't use cash basis for one and traditional accounting for the other.
Limitations and when you can't use cash basis
If your income exceeds £150,000
If your total UK property income goes over £150,000, you must switch to traditional accounting. This means:
- Tracking invoices, debtors, creditors, prepayments, and accruals
- Making year-end adjustments to match income and expenses to the correct period
- Using software that supports accruals-based accounting
Provestor only supports cash basis accounting. This is a deliberate choice. The overwhelming majority of landlords have income well below the £150,000 threshold, and focusing on cash basis allows us to deliver a simpler, cleaner experience.
If your property income exceeds £150,000, you'll need to use alternative software that supports traditional accounting.
Note
The £150,000 threshold applies to gross income (before expenses), not profit. If you have £160,000 in rental income and £50,000 in expenses, your profit might be £110,000 — but you still can't use cash basis because your income exceeds the threshold.
Transitional adjustments if you switch
If you switch from cash basis to traditional accounting (or vice versa), you may need to make transitional adjustments to avoid double-counting or missing income and expenses. HMRC provides detailed guidance on this, but it's complex and relatively rare for most landlords.
If you're approaching the £150,000 threshold and need to plan for a switch, consult your accountant or tax adviser.
How Provestor implements cash basis
Provestor is designed exclusively for cash basis accounting. When you record income and expenses:
- Income is recognised on the date received — whether that's a bank transaction date, cash receipt date, or letting agent receipt date
- Expenses are recognised on the date paid — when money leaves your account or is deducted by your letting agent
- No debtors or creditors are tracked — only actual cash movements
This keeps your digital records aligned with HMRC's cash basis rules and ensures your quarterly updates and final declaration are calculated correctly.
For practical guidance on recording income and expenses, see: