Simplification and expansion of the cash basis

The measure

The government has announced changes to simplify and expand the cash basis, which enables certain self-employed business taxpayers (individuals and partners) to calculate taxable profits based on when money is received and paid out, rather than on an accruals basis. 

Businesses are currently unable to join and remain within the cash basis if they breach certain turnover thresholds. These turnover thresholds are to be abolished and so the scheme will become available to all eligible businesses with trading income. The cash basis will become the default calculation method, with an opt-out required to use the alternative accruals basis. 

Rules specific to the cash basis are to be removed to align better with the accruals basis, including the abolition of the £500 limit on deductions for interest expenses and removing certain restrictions on relief for losses. Currently, losses calculated on the cash basis can generally only be carried forward against future trading profits; the removal of this restriction will mean it may be possible to relieve such losses against other non-trading income.

Who will be affected?

Self-employed business taxpayers and partners with trading income, including those that were previously ineligible to use the cash basis due to breaching a turnover threshold.

When will the measure come into effect?

These new rules will have effect from the 2024/25 tax year.