Rent income BASIS - AAT Greenlight incorrect?

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Luby
Luby Registered Posts: 51 Regular contributor ⭐
in AAT Level 4 (Level 8 in Scotland)
Ok so as I have the exam on thursday Im becoming increasingly frustrated with the amount of confusing answers and errors on everything I try to revise- but can someone please clarify rental income is decided on a rents received basis not a rent due basis !

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  • Luby
    Luby Registered Posts: 51 Regular contributor ⭐
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    It also says you work out the expenses on an accrual basis but again this is incorrect isnt it ? I feel i need to revise but find it exhausting
  • KaySarah
    KaySarah Registered Posts: 215 Beyond epic contributor 🧙‍♂️
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    Hi Luby
    The Main income of a business comprises its sales, these are automatically accounted for on the ACCRUALS basis by recognising Receivables (Debtors) for Credit Sales.
    An Accrual of INCOME is an amount that is due or receivable by the end of the accounting period but that has not yet been received (paid) as at the end of the period.

    The same rule applies for Expenses - an amount due but which we have not yet paid.

    Good Luck with your exam on Thursday :-)
  • Luby
    Luby Registered Posts: 51 Regular contributor ⭐
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    Hi Kay - I understand for a business purpose about accruals prepayments etc however im strictly on about rental income from property here. Ive always been led to believe this on a received and paid basis and is different from business income. Thanks for the good luck I feel i need it more this year than ones previously
  • KaySarah
    KaySarah Registered Posts: 215 Beyond epic contributor 🧙‍♂️
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    Income is Income Luby - whether its from Property being rented out or from commission being earned - doesn't matter. I'm assuming this is for AP1 and not for Tax purposes??
    If it's for Taxation purposes, your answer would be correct.

    Our Chichester Group have our exam tomorrow :-|

    Go to the e-Learn on Myaat .. there's a little learning session on it with a small table that should help.
  • Luby
    Luby Registered Posts: 51 Regular contributor ⭐
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    This is for taxation purposes Im sitting the personal tax exam. Like i say i understand for accounts production about accruals and prepayments but for personal tax I'm right in believing its on a received basis?
  • KaySarah
    KaySarah Registered Posts: 215 Beyond epic contributor 🧙‍♂️
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    Luby wrote: »
    This is for taxation purposes Im sitting the personal tax exam. Like i say i understand for accounts production about accruals and prepayments but for personal tax I'm right in believing its on a received basis?

    Not sure if this helps you Luby - but I think it should tell you somewhere in the question Which Accounting Method you are using as that will determine whether Accrued Income is Taxable or Not .. does this line help you .. sorry for late response .. studying at the moment for exam later
    http://www.ehow.com/info_8769396_accrued-income-taxable-not-collected.html
  • clegganator
    clegganator Registered Posts: 184 Dedicated contributor 🦉
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    In employment it's assessed on received basis, but for property, as it's as good as a trade it's on an accurals basis.
  • peaceb4
    peaceb4 Registered Posts: 15 Dedicated contributor 🦉
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    rental income for personal tax is based on an accruals basis. if the rent was 1000 a month then the taxable amount would be 12000. if they did not receive the last months then you could claim this as irrecoverable debt.

    to summarise,rental income is accrual basis
  • welshwizard
    welshwizard Registered Posts: 465 Dedicated contributor 🦉
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    Rental income is on the accruals basis so, as has already been stated:

    12 months x £1,000 = £12,000 assessable income

    BUT

    Tax payer can claim £1,000 as allowable expense (i.e. deduct it from assessable income) when calculating taxable property income.

    Hope this helps.
  • KaySarah
    KaySarah Registered Posts: 215 Beyond epic contributor 🧙‍♂️
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    Checked with my Tutor for you too Luby - and she confirmed Rental Income is based on Accruals basis as it's classified as a Trade (as stated by Clegganator) .. so you would be deemed as "expecting the money in" and it is therefore taxable.
    Good Luck with your Exam tomorrow.
    ps: we also found some errors in our BPP text books - it doesn't make it easy to understand when the books we are learning from contain incorrect information.
  • Luby
    Luby Registered Posts: 51 Regular contributor ⭐
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    Ok so your all going with the accruals basis yet for some reason I seem to be stubborn. Are you all thinking off this as rental income for a business? I thought it followed the same rules as employment income as it goes in to your tax return along with employment income under 'general income'. IE your salary is £35000 and your rental income is £2000 giving a total taxable amount of £37000. I'm not after the income for producing accounts but merely the figure I put in to the tax return for the individual. Everything I've been taught so far at work and college is for personal tax computations it goes in on a recieved basis. As personal tax is not for a business its for an individual. Am i just being stubborn and refusing to accept im wrong? If so i apologise but I can't seem to accept its on an accruals basis as I'm almost certain im correct. :confused1:
  • welshwizard
    welshwizard Registered Posts: 465 Dedicated contributor 🦉
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    So which tax return are you going to include your income from property on?

    SA 102 Employment (Page E1) (Attached to this post - nowhere there for property income is there?) or SA 105 UK Property (Page P1 & P2) If you're not sure on this, should you really be sitting the assessment?
  • clegganator
    clegganator Registered Posts: 184 Dedicated contributor 🦉
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    Luby wrote: »
    Am i just being stubborn and refusing to accept im wrong?

    I'm almost certain im correct. :confused1:

    yes you are being stubborn and no you're wrong. Why ask for an opinion if you wont take it on board?

    Further proof that it is on accurals basis is on another greenlight question where you're asked how much assessable rental income bearing in mind she paid 12 months insurance. You get the answer by accuring the insurance by 5/12 or whatever it was.

    You need to see that although rental is a personal tax it isn't done on a receipts basis because although it's for individuals it's more trade than anything else.
  • Monsoon
    Monsoon Registered Posts: 4,071 Beyond epic contributor 🧙‍♂️
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    An individual with rental (land and property) income is definitely assessed on an accruals basis.

    True story, honestly :)
  • deborahcarpenter
    deborahcarpenter Registered Posts: 161 Dedicated contributor 🦉
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    Got to agree with Monsoon - Property income is on an accrued basis. I have a client with a catalogue of 90 rental properties and it is definately done on the accruals basis!!!
  • Monsoon
    Monsoon Registered Posts: 4,071 Beyond epic contributor 🧙‍♂️
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    deborahcarpenter wrote: »
    Got to agree with Monsoon - Property income is on an accrued basis. I have a client with a catalogue of 90 rental properties and it is definately done on the accruals basis!!!
    90?!
    And I thought mine with a portfolio of 30 was lots!!!!!!!!!
  • deborahcarpenter
    deborahcarpenter Registered Posts: 161 Dedicated contributor 🦉
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    Monsoon wrote: »
    90?!
    And I thought mine with a portfolio of 30 was lots!!!!!!!!!

    Thankfully she is one of my most organised clients which makes my life so much easier at tax time!!!!!

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