This document discusses the general principles for allowable expenses and the tax treatment of capital expenditure and common expenses incurred by property businesses. It also covers VAT aspects and properties not let on commercial rent.
Calculation of profits and losses of a property business
From 2017/18 onwards, there are two possible bases of assessment that can be used to calculate property business profits and losses:
- the simplified cash basis, which is the default basis for calculating profits and losses, unless certain conditions are met, see the Simplified cash basis for unincorporated property busi-nesses guidance note
- the accruals basis, see the Property income - accruals basis guidance note
Prior to 2017/18, profits and losses were calculated on the accruals basis, unless the gross rental profits did not exceed £15,000, in which case a non-statutory cash basis could be used. If used, the cash basis needed to be used consistently, and the overall result needed to be reasonable and not differ substantially from the amount produced using the accruals basis. PIM1101
This guidance note discusses the general principles for allowable expenses and the tax treatment of com-mon expenses incurred by property businesses.
General principles for allowable property expenses
Before considering the rules that apply to either the simplified cash basis or the accruals basis, it is worth-while setting out the rules that are common to both bases of assessment. For the transitional rules that ap-ply to expenses where there is a change of basis, see the Simplified cash basis for unincorporated property businesses guidance note.