Sole traders or partnerships who have business receipts (not profit) not exceeding £150 000 for the tax year may elect to use the cash basis of accounting in order to calculate their trading profits for tax purposes. The benefit of such an election will be simpler record keeping less administration and more certainty over the accuracy of the taxable trading profit calculation.
If an election is made then taxable trading profit will be calculated by looking at the amounts received and paid in the period rather than the income earned and expenses incurred.
However it’s not all plain sailing and there are a number of rules to consider.
In common with the usual basis of accounting only allowable expenses can be deducted – for example client entertaining is still not deductible. However under the cash basis the distinction between capital and revenue is largely...
Please reach out to customer services at +44 (0) 330 161 1234 or 'customer.services@lexisnexis.co.uk' for further assistance.