Most unincorporated businesses have now fallen into the cash basis method for calculating their profit and loss rather than the traditional accruals basis.
The change took effect on 6 April 2024, so the cash basis becomes the default method for the 2024/2025 tax year.
Why does this matter?
The basis on which accounts are taxed is important for two key reasons:
– It impacts the information available to help you control and run the business
– It can impact cash flow and the timing of your tax liabilities.
Who does it affect?
This change affects unincorporated businesses, although these businesses are excluded:
> partnerships that have a corporate member
> Limited Liability Partnerships
> Lloyd’s underwriters
> those using the special profit averaging rules for farmers, and creators of literary or artistic works
> farming businesses with a current herd basis election
> businesses that have claimed business premises renovation allowance
> ministers of religion
> businesses that have claimed research and development allowances.
Opting out
Opting out requires a formal election, which is made on the tax return. The election has an effect from the tax year in which it is made and doesn’t need to be made again. You can, however, revoke the election, and move back onto the cash basis, if you choose.
We look at this and comparisons of the two methods in more detail here Topical Issue: Using cash basis accounting publication.
Contact
If you would like to discuss your situation with our experts, please call our Leicester office on 0116 254 9262, or Loughborough office on 01509 263500. Alternatively, our contact form is here.