Finance Bill – in a Public Bill Committee am 2:30 pm ar 17 Hydref 2017.
Mel Stride
Financial Secretary to the Treasury and Paymaster General
Clause 16 makes changes to ensure that landlords can use the cash basis to calculate their profits for tax, and simplifies the treatment of capital expenditure within the cash basis.
At Budget 2016, the Government announced that we would explore options to simplify the tax rules for businesses, self-employed people and landlords. Trading businesses have been able to use the cash basis method of calculating their profits for tax since 2013. The method calculates profits on a cash in, cash out basis and minimises the need for complicated accounting adjustments. It has been well received; more than 1 million trading businesses have chosen to use the cash basis since its introduction. Extending and improving the cash basis is a significant step to simplify the tax rules.
Following consultation, the Government announced that from April 2017 they would increase the cash basis threshold for traders to £150,000, extend the cash basis to some landlords, and simplify the treatment of capital expenditure in the cash basis. The increase to the cash basis threshold for traders was implemented by secondary legislation, so does not appear in the Bill.
The changes made by the clause will allow more than 2.3 million property businesses to choose to use the simpler cash basis method of calculating their profits for tax, which will provide administrative savings to approximately 1.8 million of them. The changes to the treatment of capital expenditure in the cash basis will allow capital expenditure to be deducted from income, unless it relates to specific types of assets listed in the legislation. That will mean that, including any additional property businesses, nearly 3 million businesses using the cash basis will have a clearer idea of what they can deduct for tax, and when.
The clause legislates for measures announced at spring Budget 2017 and takes effect from April 2017. It therefore has retrospective effect. The measures will simplify tax on many businesses and landlords, who will benefit from the use of the cash basis and the reform of the capital expenditure rules in the cash basis.
