Cash Basis vs Traditional Accounting: Landlords 2026/27

4 min read

Table of Contents

Cash basis versus traditional accounting
Who cannot use the automatic cash basis?
Worked timing example
Reasons to stay with the cash basis
Reasons to consider traditional accounting
Finance costs do not become fully deductible
Capital expenditure under the cash basis
Changing accounting method
Jointly owned property
Making Tax Digital in 2026/27
Year-end cash-basis checklist
Official guidance

Most individual UK landlords and eligible partnerships use the cash basis automatically when annual property-business receipts are £150,000 or less. They record income when received and expenses when paid. A landlord can elect for traditional—or accruals—accounting where it gives a more accurate or useful result.

This 2026/27 guide focuses on the choice between the two methods, year-end differences and when opting out deserves consideration.

Cash basis versus traditional accounting

Issue	Cash basis	Traditional accounting
Rental income	Recorded when money is received	Recorded when earned, including amounts due
Expenses	Recorded when paid	Recorded when incurred, with creditors and accruals
Tenant arrears	Usually excluded until collected	Normally recognised when due, with possible bad-debt adjustment
Advance rent	Generally recognised on receipt	Allocated to the period it covers
Balance sheet	Simpler records; debtors and creditors usually unnecessary	Assets, liabilities, debtors and creditors are recorded
Capital expenditure	Specific cash-basis rules and exceptions	Capital rules and any relevant allowances

Who cannot use the automatic cash basis?

The cash basis is not available to every property business. Exclusions include companies, limited liability partnerships, trusts and certain partnerships with a corporate member. Businesses over the £150,000 receipts limit use traditional accounting. Special entities and transactions require separate checks.

Worked timing example

A tenant pays £2,000 arrears on 10 April 2027 for rent due in March 2027. Under the cash basis, the receipt normally falls into 2027/28 because that is when it was collected. Under traditional accounting, it is normally recognised in 2026/27 when earned, subject to recoverability.

A £900 repair is completed and invoiced on 28 March 2027 but paid on 15 April. The cash-basis deduction normally falls in 2027/28; traditional accounting generally recognises the liability in 2026/27.

Reasons to stay with the cash basis

records align closely with bank and letting-agent statements;
unpaid tenant arrears are not normally taxed before collection;
bookkeeping is simpler for a small portfolio;
cash-flow monitoring is straightforward;
it integrates naturally with digital transaction records for Making Tax Digital.

Reasons to consider traditional accounting

you need management accounts showing rent earned rather than cash collected;
there are substantial arrears, advance payments or year-end creditors;
lenders or investors require accruals-based statements;
the portfolio is approaching the £150,000 receipts limit;
a particular capital transaction is treated more appropriately under traditional rules;
you want consistent accounts across related businesses or entities.

An election affects the whole relevant property business, not individual expenses chosen one by one. UK and overseas property businesses are normally separate.

Finance costs do not become fully deductible

The cash basis does not override the residential finance-cost restriction. Individual landlords generally receive a basic-rate tax reduction for qualifying interest rather than deducting it in full from property income. Capital mortgage repayments remain non-deductible under either method.

Capital expenditure under the cash basis

Cash-basis rules can allow some capital expenditure but contain significant exceptions, including land and buildings, cars, financial assets and other excluded assets. Residential domestic items have their own replacement relief. Do not assume every paid capital invoice is immediately deductible.

Use our repairs versus capital costs guide before posting major works.

Changing accounting method

Moving between cash and traditional accounting requires transitional adjustments so income and expenses are not taxed twice or omitted. Review debtors, creditors, advance rent, accrued expenses and capital items at the change date. A large adjustment may affect payments on account or marginal tax rates.

Jointly owned property

Joint owners generally need consistent information about receipts and payments, but each person’s tax reporting follows their own legal share and circumstances. Married couples, civil partners and partnerships can have additional rules. The £150,000 test applies to the relevant property business, not simply to the cash received by one joint bank-account holder.

Making Tax Digital in 2026/27

Landlords required to use MTD for Income Tax must maintain digital records and send quarterly updates. MTD does not itself change the cash-basis tax rules, although transaction-level digital records make receipt and payment dates especially important. The first mandatory threshold is qualifying gross self-employment and property income over £50,000 from 6 April 2026.

See our landlord MTD and HMRC deadlines guide.