Cash basis ― overview

Produced by a Tolley Owner-Managed Businesses expert

Owner-Managed Businesses

Guidance

This guidance note sets out the principles of using cash basis accounting for unincorporated businesses. Cash basis is a simplified form of accounting and it is intended to make the calculation of trading profits easier by accounting for income and expenditure based on money received from customers and money paid to suppliers.

Cash basis for trading businesses from 2024/25

Finance Act 2024, introduces an expansion of the cash basis for self-employed taxpayers including those in partnerships from the tax year 2024/25. The changes do not apply for property businesses, companies or those entities already excluded from the current cash basis regime.

Prior to 2024/25 the default method for calculating profits of trading businesses was the accruals basis and in order to use the simpler cash basis businesses had to opt in. The changes make the cash basis the default method of calculating profits and businesses have to opt to use the accrual basis instead. The election has effect for the tax year for which it is made and for any subsequent tax year.

Before the changes in

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