- The government launched a consultation at Budget 2023 to gather views on options to extend the self-employed cash basis, which allows sole traders and some partnerships to calculate their profits for income tax purposes based on amounts actually received and paid during their accounting period, rather than amounts accrued. The cash basis also affects relief for capital expenditure of the business.
- It was confirmed at the Autumn Statement 2023 that significant changes would be made to the cash basis for unincorporated traders from 6 April 2024. In summary, these are:
- The removal of the £150,000 turnover limit
- Making cash basis the default treatment for eligible businesses (they may elect to use the accruals basis)
- Removal of the £500 restriction for finance cost deductions
- Removal of restrictions to loss reliefs, thus allowing businesses on the cash basis to use sideways relief as well as carry forward
- Certain businesses remain ineligible for the cash basis including, inter alia, companies, partnerships with any corporate partners, and limited liability partnerships (LLPs) (whether or not they have corporate partners).
- LLPs for this purpose only include those formed under UK legislation (the LLP Act 2000), so non-UK LLPs are potentially eligible unless they are excluded for other reasons.
- Timing: the changes will have effect from the tax year 2024 to 2025.
Resources (click to open)
- Expanding the cash basis (HMRC policy paper, 22 November 2023)
- Simplification and expansion of the cash basis| TaxScape | Deloitte (November 2023)
- Expanding the cash basis (HMRC consultation, closed 7 June 2023)
