The Cash Basis for Sole Traders

From April 2024 cash basis became the default reporting for all sole traders. So for those now looking to complete their 2024/25 tax returns this will now apply.

What does this mean?

• Previously there was a limit on the turnover of a business for them to qualify for the cash basis, from April 2025 this is removed and it becomes the default
• The cash basis means that you report your income and expenses based on when you receive and spend money, rather than on the date of the invoice
• This simplifies your reporting however there are restrictions, such as capital allowances still applying to the purchase of a car.
• If you currently prepare your accounts on an accruals basis and want to remain so, you will need to ensure you tick a box on your tax return to opt out of the cash basis

Who is it not suitable for?

• Farmers averaging will not apply under the cash basis so farmers may prefer to stay as they are.
• Banks may still require accounts to be prepared on an accruals basis.
• You have a business with high levels of stock, as there is no stock adjustment.
• If you rely on management information to report performance, cash basis may not be accurate.

Get In Touch

Your current contact will be aware of the changes and will let you know if they feel it is relevant to you, but please do not hesitate to get in touch with your local Whitings LLP office if you have any questions.

Disclaimer - All information in this post was correct at time of writing.