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Cash basis changes a boost for some businesses, says ATT

22 November, 2023

Changes to the cash basis accounting method will make it more attractive, but it still won’t be the right answer for everyone, warned the Association of Taxation Technicians (ATT).

The cash basis allows self-employed people to calculate their profits based on when income is received or payments made – i.e. on a cash in and out basis. This is a simpler approach than traditional accruals-based accounting.

At today’s Autumn Statement1 the Chancellor announced that, from April 2024:

  • The cash basis will be the default, with an opt-out for those wishing to use the accruals basis.

  • The turnover threshold of £150,000 will be removed entirely, so even the largest self-employed businesses can use the cash basis.

  • Existing restrictions on interest deductions and loss relief under the cash basis will be removed.

Senga Prior, chair of the ATT Technical Steering Group, said: 

“We are pleased to see the removal of restrictions to relief for interest costs and loss relief as this should make the cash basis much more accessible to smaller businesses. Given the current high interest rates, the current approach of restricting relief to only £500 of interest costs is unrealistic.

“The changes to loss relief will also help start-ups who may be expecting to make a loss in their earlier years. Under the current cash basis rules, they can only carry losses forwards until they make profits. From April 2024, they should be able to use their losses more flexibly and get the benefit of the related tax relief much sooner.”

However, the ATT warned that the cash basis still will not be the right option for everyone.

Senga Prior added:

“For some businesses, the cash basis will be simply unsuitable, even after these welcome changes. There are many reasons besides tax why a business may choose the accruals basis over the cash basis. Accruals accounting provides a truer measure of the profitability and position of a business in a given period and is often required by banks for finance applications. The accruals basis is also more suitable for seasonal or fluctuating businesses, those that have high values of stock and larger businesses.

 “We are pleased to see the Government agree that much more guidance is needed in this area and hope that guidance will highlight the potential shortcomings of cash based accounting. In advance of the cash basis being made the default position, we’d also like to see an extensive education campaign to ensure those affected know what changes are made to the cash basis and can apply it correctly.”

Notes for editors

  1. Autumn Statement 2023 (p94).