Change from 6 April 2024 for unincorporated businesses to calculate profits
Released On 4th Mar 2024
From 6 April 2024, new legislation is coming into effect which will mean the default method for calculating the profits of an unincorporated eligible business will be the cash basis. Should a business wish to continue using the accruals basis, an election will need to be made.
Under the cash basis, income and expenditure is reported based on the date income is received or the date the expense is paid.
Whilst under the accruals basis, income and expenditure is reportable in the period it relates, rather than when the cash is paid or received, which generally results in adjustments being required.
Under current rules for VAT registered unincorporated businesses, the cash basis can be used provided turnover is below £150,000; or if one is already using the cash basis, provided the turnover remains below £300,000. The turnover threshold will no longer apply from 6 April 2024.
Under the existing rules, those using the cash basis were restricted in offsetting any losses that arose from a trade, and relief for interest or finance charges restricted to £500. These two restrictions will be lifted from 6 April 2024.
The cash basis is generally simpler to use. If you are currently required to use the accruals basis, providing your business does not fall into any of the excluded categories, you may wish to change to the cash basis of accounting.
If you have any queries or would like to discuss making the change from accruals to cash basis, please contact us to discuss your personal position.
