Tax return changes for the self-employed
As the 2024/25 tax year has just ended, some self-employed individuals and partnerships will be starting to complete their tax return. There has been a change in the tax rules about how you disclose your accounting information to HMRC on your tax return. This article briefly explains the changes and provides links to our updated guidance which explains what you need to know so you can do your return correctly.
Changes to the cash basis
Most sole traders and partnerships can choose to prepare their accounts using one of two methods – the cash basis or the accruals basis. The cash basis may be easier for smaller business to use as it works on accounting for income and expenses when money is actually received or paid out, whether through using cash, via bank transfers or online platforms.
The cash basis approach to prepare business accounts isn’t new – it has been around since 2017 but there are some changes to the rules starting in the 2024/25 tax year which will affect the self assessment tax return you will be completing now.
The main change to be aware of is that the cash basis is now the default method on your tax return. This means you no longer need to do anything if you want to use the cash basis – HMRC will assume that this is the accounting method you are using. Previously, for 2023/24 and earlier years, you had to tell HMRC on your tax return if you wanted to use the cash basis.
You can still choose to use the accruals basis (sometimes called traditional accounting) if you want to, and some businesses aren’t eligible to use the cash basis and will need to use the accruals basis instead. However, from the 2024/25 tax return onwards you will need to elect to use the accruals basis– you can do this on your tax return.
To encourage more partnerships and self-employed individuals to use the cash basis, the rules have also been changed to make it more accessible for businesses to use when preparing their accounts. In summary the other changes are:
- There are now no turnover (sales) thresholds on joining or leaving the cash basis
- There is no longer any restriction on the amount of bank and loan interest or finance costs that can be claimed as a business expense
- If you have trading losses, you now have the same wider choice on how to use them as if using the accruals basis.
Our website guidance on the cash basis contains more detailed information on these changes and how the cash basis works.
