Cash Basis vs Accruals for Landlords (2026): Which to Use
Last updated 22 June 2026 · 8 min read · By the LandlordTaxAi Editorial Team
The short answer
Since the 2024/25 tax year the cash basis is the default for most individual landlords: you count rent when it arrives and expenses when you pay them. The accruals basis instead counts income and costs when they are earned or incurred. Cash basis is simpler and follows your bank statements — ideal for Making Tax Digital. You can elect for accruals if you carry large debtor/creditor balances or want more precise timing. For most landlords, the default is the right call.
The core difference: timing
Both methods tax the same profit eventually — the only thing that changes is which tax year a particular pound lands in. The cash basis follows the money. The accruals basis follows the obligation.
| Situation | Cash basis | Accruals basis |
|---|---|---|
| Rent due 28 Mar, paid 4 Apr | Taxed in the new (April) year | Taxed in the old (March) year |
| Repair invoiced 30 Mar, paid 10 Apr | Deducted in the new year | Deducted in the old year |
| Record keeping | Follow the bank — simple | Track debtors & creditors |
| Who it suits | Most small landlords | Larger/complex portfolios |
Over a few years the two converge — a pound counted late one year is just a pound counted early the next. The difference matters most at the edges of the tax year and when your income level pushes you near a band threshold.
Why HMRC made cash basis the default
The cash basis became the default for unincorporated property businesses from 2024/25 precisely because it is easier and fits digital record keeping. You no longer have to calculate accruals and prepayments at the year end — you record what hit the bank. For a landlord with a couple of properties, that removes a real chunk of admin and the errors that come with it.
It also dovetails with Making Tax Digital. Because cash-basis records mirror your bank activity, MTD software can build your quarterly updates straight from a bank feed or statement upload. If you are still working out whether MTD applies to you, see Do I need MTD for my rental income?
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Rental profit & tax calculator
Estimate the tax on your rental income for 2026/27
Result
- Taxable profit (rent − expenses)
- £11,200
- Income Tax at 40%
- £4,480
- Less mortgage interest credit (20%)
- − £1,000
- Tax due on this property
- £3,480
- Income after tax
- £7,720
Estimate based on verified 2026/27 UK rates. Informational only — not personal tax advice.
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Start your free trialWhen you might opt out and use accruals
The cash basis is the default, not a cage — you can elect for accruals on your return. It can be worth it when:
- You routinely carry large amounts owed at the year end (big rent arrears or sizeable unpaid supplier invoices), where accruals timing better matches the economics.
- You want to bring a cost forward into a higher-income year for relief, and you can control when it is incurred rather than when it is paid.
- Your business is large or sophisticated enough that you already prepare full accounts, so accruals adds little extra work.
- You operate through a company — limited companies must use accruals, so the cash basis is not an option at all. (Thinking of incorporating? Read our incorporation relief guide.)
When you switch between bases there are transitional adjustment rules so income and expenses are neither double-counted nor missed. They are manageable but fiddly, so do not flip back and forth casually.
The mortgage-interest point everyone asks about
A quick myth-bust: your choice of basis does not escape the Section 24 restriction. On both the cash and accruals basis, residential finance costs only get a 20% basic-rate tax reducer, not a full deduction. The old cash-basis £500 interest cap has been removed, so finance-cost treatment is now broadly aligned between the two methods. Basis affects timing of when you relieve the interest — not the headline restriction.
Frequently asked questions
What is the cash basis for landlords?
The cash basis means you record rental income when the money actually lands in your account and expenses when you actually pay them. It ignores when the rent was due or when an invoice was dated. Since the 2024/25 tax year, the cash basis is the default method for most unincorporated landlords (individuals and partnerships) whose rental business is run in the normal way. It is simpler because you essentially follow your bank statements.
What is the accruals basis?
The accruals basis (also called the traditional or earnings basis) records income and expenses in the period they are earned or incurred, not when cash moves. So rent due in March but paid in April is taxed in the March year, and an invoice dated before the year end counts even if you pay it later. It needs you to track debtors and creditors. Companies must use the accruals basis; individual landlords can elect to use it instead of the default cash basis.
Which basis is better for a landlord?
For most small landlords the cash basis is simpler and broadly tax-neutral over time, which is why HMRC made it the default. The accruals basis can be better if you have significant amounts owed at the year end, want to spread certain costs more precisely, or have finance arrangements where the accruals treatment of interest helps. If your rental income is large or complex, or you carry big debtor/creditor balances, it is worth comparing both — or asking an accountant.
Can I switch between cash basis and accruals?
Yes. The cash basis is the default, but you can elect to use the accruals basis on your tax return for a given year, and you can switch back later. When you change basis there are transitional adjustment rules so that income and expenses are not counted twice or missed. Frequent switching is usually a sign you should get advice, because the adjustments can be fiddly.
Does the cash basis affect mortgage interest relief?
The Section 24 restriction applies regardless of which basis you use — residential landlords get only a 20% basic-rate tax reducer for finance costs, not a full deduction, on both the cash and accruals basis. What the cash basis changes is timing: you relieve interest when you pay it. The old cash basis also had a £500 interest cap, but that restriction was removed, so finance-cost treatment is now broadly aligned between the two methods. See our Section 24 guide for the full picture.
How does the cash basis work with Making Tax Digital?
The cash basis fits Making Tax Digital for Income Tax very neatly. Because you record income and expenses as the money moves, your digital records can be driven straight from your bank feed or statement uploads, and each quarterly update is essentially a tidy-up of what already happened. That is why MTD-ready software defaults to cash-basis style record keeping for most landlords.
LandlordTaxAi Editorial Team
The LandlordTaxAi editorial team writes about UK landlord tax, HMRC compliance, and Making Tax Digital. Our content is reviewed against current HMRC guidance and updated when the rules change. Operated by LandlordTaxAi, United Kingdom. Follow us on LinkedIn.
Last reviewed: 22 June 2026 · Based on HMRC guidance on the cash basis for property income (PIM1090 onwards). This article is informational only and does not constitute tax advice. Always check the latest details on GOV.UK or with a qualified accountant.