The Cash Basis: What did the Autumn Statement change?

As a result in its 2023 Autumn Statement briefing, the Government announced the following: 

£150,000 threshold removed 

The cash basis is available to self-employed businesses with a turnover of less than £150,000 a year. This includes sole traders and partnerships. All businesses will now be eligible to use the cash basis following the removal of the £150,000 threshold. 

Cash basis the new default 

Using the cash basis was an option for those eligible businesses who could tick a box on their tax return to opt in. In a switch around, the cash basis will become the default accounting method for sole traders. 

Businesses will need to opt-out of the cash basis to use the traditional accruals basis.  

Interest deductions restriction removed 

Sole traders that currently use the cash basis are unable to deduct more than £500 in interest costs from their taxable profits each year. The restriction of £500 of interest will be removed. 

From April 2024, businesses will be able to deduct interest that is incurred wholly and exclusively for the purposes of the trade. 

Loss relief restrictions removed 

They will remove the restriction on businesses carrying forward losses. You can use losses to offset income in the same period or apply them to previous years. Loss relief will be subject to the same general loss relief rules as accruals losses. 

When do the changes in cash basis come into effect?

The changes will take effect from April 2024, for the tax year 2024 to 2025. The Treasury estimates that simplification of cash period reporting will affect up to four million sole traders. 

It is important the self-employed understand the difference between cash and accruals accounting. The changes are crucial to reporting and businesses need to be aware of the pros and cons for each.  

Pros 

• Simpler method of accounting, fewer accounting adjustments required 
• Tax paid on income received rather than earnt 

Cons 

• Gives a less true picture of profitability 
• Lenders might require more detail and the preparation of accounts under the accruals basis. 
• Income, expenses and profits are not ‘smoothed out’ so cashflows will appear more sporadic and can affect the tax liability. 

How can TaxAssist Accountants help?  

To learn more about how the cash basis could affect you, speak to our qualified and friendly team today. Call TaxAssist Accountants on 01603 258690 or drop us a line using our online enquiry form. 

Date published 28 Nov 2023

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