Expanding the cash basis

From 6 April 2024 there were changes to cash basis accounting which make it easier for businesses to use it. 

Cash basis accounting means that you only need to declare income when you have actually been paid.

These changes only apply to the cash basis for trading income. No changes are being made to the cash basis for property businesses.  

Updates have been made to cash basis guidance explaining:

• who can use cash basis

• rules about the use of cash basis

  
  

If businesses wish to use traditional accounting (accruals basis) to report their profits for tax purposes, they will need to opt out of the cash basis when submitting their Self-Assessment tax returns for the tax year 2024 to 2025 and subsequent tax years.

Businesses excluded from using the cash basis should indicate this on their tax return each year by ticking the relevant box.

Who can use cash basis

You can use cash basis if you’re a sole trader or partnership without corporate partners.

Who cannot use cash basis

You cannot use cash basis if your business is a:

• limited company

• limited liability partnership

• partnership with one or more corporate partners

You also cannot use cash basis if you are a:

• Lloyd’s underwriter

• farming business with a current herd basis election

• farming or creative business with a fluctuating profit averaging claim

• business that has claimed business premises renovation allowance within the previous 7 years

• business that carries on a mineral extraction trade

• business that has ever claimed research and development allowance

For further guidance and advise contact Amin & Co Accountants or call at 0161 224 3510