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ICAEW publishes Q&As on the cash basis for traders

Author: ICAEW Insights

Published: 10 May 2024

In TAXguide 04/24, ICAEW’s Tax Faculty answers the questions raised during a recent webinar on the changes to the cash basis for the self-employed and partners.

Under the cash basis, an individual carrying on a trade may calculate their profits on a ‘cash in, cash out’ basis, rather than using the traditional accruals method of accounting. This is simpler for many individuals as it removes the need for year-end adjustments, such as the calculation of accruals and prepayments. Some businesses are excluded from using the cash basis, eg, partnerships with one or more corporate partners. 

A number of changes have been made to the cash basis for 2024/25 onwards.   These include making it the default basis, although it is possible to elect to continue to use the accruals method.  

Other changes for 2024/25 include: 

  • removing the turnover thresholds that applied for earlier years to determine if a business was eligible to use (or to continue to use) the cash basis;
  • abolishing the cap of £500 on the amount that could be deducted in respect of interest on a loan; and
  • lifting the restrictions on how losses calculated using the cash basis can be used. From 6 April 2024, a loss calculated using the cash basis may be offset in the same way as a loss calculated on the accruals basis. 

On 18 April 2024, ICAEW’s Tax Faculty delivered a webinar on the cash basis, focusing on the changes applying for 2024/25. The webinar is available to watch on-demand.  A number of questions were asked during the webinar and the answers to these have been published in TAXguide 04/24. For further reading, see the TAXline article Changes to the cash basis for traders.  

Viewing the webinar could contribute up to one hour of verifiable continuing professional development (CPD) for an ICAEW member where it is relevant to their role. More time can be added where the member uses the TAXguide and/or reads the TAXline article. ICAEW has published an article explaining how content provided by the Tax Faculty can help members meet their CPD requirements. 

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