Published on 16 January 2024

Finance bill briefing: Clause 16 and Schedule 10: Provision relating to the cash basis

Submissions

Clause 16 and Schedule 10 change the current rules for reporting information on self assessment tax returns for most unincorporated businesses. The aim is to allow more sole traders and partnerships to be eligible to use the cash basis rather than the accruals basis (also known as traditional accounting) which may simplify the preparation of their business accounts. 

a calculator, a magnifying glass and a pad of squared paper with the words 'Cash basis' written on the top sheet along with an illustration of a stack of money
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We are generally supportive of these changes as making the cash basis the default way to prepare business accounts will formalise the way some low-income unrepresented traders are currently, and technically incorrectly, completing their tax returns.

However, we have a number of concerns about the expansion of the cash basis. These are:

  • the timing of the new rules starting from April 2024 as this is also the first year of the new Basis Period Reform rules (following the 2023/24 transition year);
  • there needs to be improved guidance clarifying areas which low-income unrepresented businesses struggle with, such as the timing of receipts and payments under the cash basis, in particular when trading through digital platforms;
  • HMRC need to develop a compliance approach for taxpayers who realise they have been preparing their tax returns incorrectly using the cash basis but not electing to do so. We recommend that HMRC apply a sensible and ‘light-touch’ approach regarding any genuine errors which come to light following the move to these new rules.

Claire Thackaberry

Technical officer

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You can read LITRG’s full briefing using the link provided. 

LITRG's briefing
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