Cash basis to replace accruals

Written by AJN Accountants
4 December 2023

Cash basis to replace accruals for the self-employed as standard tax reporting method for 2024-25 (first year of tax year accounting).

From April 2024, as part of a move to simplify calculation of taxable profits for Making Tax Digital, all self-employed taxpayers and partnerships will by default report their taxable profits under the cash accounting basis.

Currently, the default position is for businesses to calculate taxable profit using the accruals method (accounting for income and expenses when earned and incurred, not when cash is actually received or paid) but most businesses with total receipts below £150,000 are eligible to elect to use the cash basis.

The new measures will reverse that presumption, making the cash basis the default position for all self-employed taxpayers and partners, with an option to elect for the accruals basis.

This is a fundamental change with the potential to create very different profits for a lot of businesses currently using the accruals basis. Although the cash basis should in theory result in simpler calculations of taxable profits, the transition from accruals to cash accounting could be complicated.

Contact us to discuss whether switching to the cash basis or opting out would be best for your business.

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