Cash basis is replacing accruals for 2024-25

For the self-employed, the cash accounting basis will replace accruals as the standard tax reporting method for 2024-25 (first year of tax year accounting).

What are the changes?

From April 2024, all self-employed taxpayers and partnerships will, by default, report their taxable profits under the cash accounting basis. This is part of an initiative to simplify the calculation of taxable profits for Making Tax Digital.

The accruals method

At the moment, the current default position is for businesses to calculate taxable profit using the accruals method: accounting for income and expenses when earned and incurred, not when cash is actually received or paid. But most with receipts totalling less than £150,000 can choose to use the cash basis.

The cash accounting basis

The new measures will make the cash basis the default position for all self-employed taxpayers and partners, with the option of electing to use the accruals method.

How could this affect you?

This major change has the potential to create very different profits for a lot of the businesses currently using the accruals method. The cash basis should, in theory, result in simpler calculations of taxable profits. But the transition from accruals to cash accounting could be complicated.

Contact our experts to discuss whether switching to the cash basis or opting out would be best for your business.