At Autumn Statement 2023 the UK government announced that, from 2024/25 onwards, the cash basis will be the default method for calculating business profits for self-employed traders and those in partnerships. The accruals basis will still be available, but businesses will have to opt in, in a reversal of the current position. In a perhaps more significant move, the turnover limits for the cash basis will be removed, opening it up to businesses regardless of size, and the restrictions on interest deductions and the use of losses in the cash basis will be abolished.
Responding to the proposals, 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’, she added.
The ATT notes, however, that the cash basis may not suit all businesses, particularly larger organisations and those with seasonal or fluctuating turnover, and highlights the importance of ‘an extensive education campaign to ensure those affected know what changes are made to the cash basis and can apply it correctly.’
Alongside the various changes for business, the chancellor also hinted, in something of a throwaway line in his speech, that HMRC would be given ‘the resources they need to ensure everyone pays the tax they owe, raising an additional £5 billion across the forecast period.’
Kate Ison, partner at Bryan Cave Leighton Paisner, said: ‘As the Government faces a real need to increase tax revenue, the additional funding pledged by the government will be used to bolster HMRC’s resource to manage and collect tax debts. This will be a critical step in increasing tax yield ... HMRC must use its additional funding wisely to pursue those who deliberately refuse to pay, in order to see a real return and to plug the tax gap.’
Further details of the cash basis changes, together with other key Autumn Statement 2023 proposals, are set out in the summary on p ****.
At Autumn Statement 2023 the UK government announced that, from 2024/25 onwards, the cash basis will be the default method for calculating business profits for self-employed traders and those in partnerships. The accruals basis will still be available, but businesses will have to opt in, in a reversal of the current position. In a perhaps more significant move, the turnover limits for the cash basis will be removed, opening it up to businesses regardless of size, and the restrictions on interest deductions and the use of losses in the cash basis will be abolished.
Responding to the proposals, 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’, she added.
The ATT notes, however, that the cash basis may not suit all businesses, particularly larger organisations and those with seasonal or fluctuating turnover, and highlights the importance of ‘an extensive education campaign to ensure those affected know what changes are made to the cash basis and can apply it correctly.’
Alongside the various changes for business, the chancellor also hinted, in something of a throwaway line in his speech, that HMRC would be given ‘the resources they need to ensure everyone pays the tax they owe, raising an additional £5 billion across the forecast period.’
Kate Ison, partner at Bryan Cave Leighton Paisner, said: ‘As the Government faces a real need to increase tax revenue, the additional funding pledged by the government will be used to bolster HMRC’s resource to manage and collect tax debts. This will be a critical step in increasing tax yield ... HMRC must use its additional funding wisely to pursue those who deliberately refuse to pay, in order to see a real return and to plug the tax gap.’
Further details of the cash basis changes, together with other key Autumn Statement 2023 proposals, are set out in the summary on p ****.
