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The 'Cash Basis' is designed to make it easier for small firms to manage their income tax obligations and be more confident "they have got their tax right".

For the 2013-14 tax year and beyond, ‘Cash Basis’ is a new way that self-employed businesses (sole traders) can calculate their income and expenses when completing their self assessment tax return.

Cash Basis – who qualifies? - To qualify to use the scheme, your annual income as a self-employed business must not exceed £150,000 (for 2017/18). If your turnover increases above this figure during the tax year, you can remain in the scheme for the rest of that tax year, providing your turnover does not exceed £300,000.

The scheme is not relevant to limited companies and limited liability partnerships.

Cash Basis – how does it work? - You can record your income and expenses over the tax year either on a Cash Basis (ie. when money actually enters and leaves your business, whether cash, card payment or cheque) or by using ‘traditional accounting’ methods (ie. accruals basis – recording income and expenses when you invoice your customers or receive a bill). The choice is yours.

The Cash Basis scheme has been introduced because it is likely to better suit the cash flow circumstances of many smaller businesses at the end of the tax year, because they won’t have to pay income tax on money that hasn’t yet been received.

  • When the Cash Basis might not suit your business

    The Cash Basis probably won’t suit you if you:

    • want to claim interest or bank charges of more than £500 as an expense
    • run a business that’s more complex, eg you have high levels of stock
    • need to get finance for your business - a bank could ask to see accounts drawn up using traditional accounting to see what you owe and are due before agreeing a loan
    • have losses that you want to offset against other taxable income (‘sideways loss relief’)

Registered office: 61 Friar Gate, Derby, Derbyshire, DE1 1DJ

Adrian Mooy & Co is the trading name of Adrian Mooy & Co Ltd.  Registered in England No. 05770414

Registered to carry out audit work by the Association of Chartered Certified Accountants - auditregister.org.uk 8011438

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61 Friar Gate - Derby - DE1 1DJ

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