As a landlord, your income may come in many forms — standing orders, letting agents, online platforms… and occasionally, plain old cash. But with the shift to Making Tax Digital (MTD), and increased scrutiny from HMRC on digital records and real-time data, one question looms large:
What happens if your tenant pays rent in cash?
This seemingly simple situation can become surprisingly complicated under MTD for Income Tax Self Assessment. Let’s explore why — and what landlords should be thinking about now.
Cash Isn’t Illegal, But It Comes With Strings
First, let’s be clear: accepting rent in cash is not illegal. Some tenants — particularly older ones, or those without bank accounts — may prefer to pay this way. And landlords, especially with smaller portfolios, might accept it for simplicity.
However, cash transactions leave no automated trail. Under MTD, landlords must use compliant software to keep digital records of their rental income. So, when that income arrives in the form of physical notes, how do you prove it, log it, and reconcile it properly?
Risk #1: Gaps in Your Digital Trail
If HMRC audits you and sees regular monthly payments from tenants A and B, but notices tenant C’s income is sporadic or missing, they’ll want an explanation.
Scribbled notes or vague entries in a spreadsheet won’t cut it. MTD means digital records — timestamped, structured, and backed by evidence.
Risk #2: Assumptions of Underreporting
Cash payments raise red flags because they’re easier to underreport. While most landlords are honest, HMRC’s systems are designed to detect irregularities, and cash-heavy landlords may receive more scrutiny — even if nothing is wrong.
Quarterly MTD reporting makes it harder to “catch up later” or hide delays. If you’re handling cash, you need a method to record it accurately and promptly.
A Smart Workaround: Cash Receipt Logs in Your Software
Some modern landlord accounting tools now include a feature specifically for logging cash payments. These logs allow you to:
- Record when the cash was received
- Note the payer, amount, and rental period
- Attach a digital image of a handwritten receipt or signed note
While this doesn’t automate the process, it creates a clean digital record — one that HMRC is much more likely to accept.
Should You Still Accept Cash?
That depends on your circumstances. If the tenant is reliable and you’re confident in your record-keeping, there’s no legal reason not to. But you must be disciplined — especially with MTD looming.
On the other hand, encouraging tenants to pay via bank transfer or through a letting agent simplifies your life and keeps you fully aligned with HMRC’s expectations.
Conclusion
In an increasingly digital tax environment, cash hasn’t disappeared — but it needs to be treated with care. MTD software for landlords is about traceability, accuracy, and doing things properly.
So if you’re a landlord still accepting cash, now’s the time to review how you handle those payments. Because under MTD, what you can’t prove digitally might not count — and that could cost you.
Would you like a checklist for recording cash income under MTD? I’d be happy to put one together.
