Expansion of cash basis for unincorporated businesses

Self-employed business owners and partners with trading income currently calculate their taxable income for income tax purposes using the accruals basis as the default unless they elect to use the cash basis. There are currently restrictions on who can use the cash basis.

However, from the tax year 2024/25, the cash basis will be the default method of calculating profits for eligible businesses. They will use this basis unless they elect to use the accruals basis.

Currently, businesses are only able to join the cash basis if their cash basis turnover is less than £150,000 and are forced to leave when their turnover exceeds £300,000. These restrictions will be removed entirely so that unincorporated businesses of any size will use the cash basis unless they elect to use the accruals basis. However, businesses that are not entitled to use the cash basis for other reasons will continue to be excluded. These include partnerships with a corporate member, limited liability partnerships, or businesses that have made a claim for farmers’ or artists’ averaging.

In addition, the current restrictions on cash basis users relating to interest cost deductions and utilisation of losses will be removed. This means that businesses that use the cash basis:

• can deduct any amount of interest that is incurred wholly and exclusively for the purposes of the trade; and
• will be able to use losses calculated under the cash basis against general income of the same tax year or carried back to earlier years, subject to the same general loss relief rules as accruals losses.

Further reading:

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