Cash basis versus accruals basis

This article is aimed at students studying for their ATT paper 2 and paper 3 exams. The article references the tax year 2024-25 which is the main focus of exams in 2025 but the technical principles discussed in this article will be relevant for the 2026 examinations as well.

Introduction

One of the big changes for business tax for the 2025 exams is the move to adopt the cash basis as the default method for calculating taxable trading profits for most unincorporated businesses for the tax year 2024-25 onwards. If businesses wish to use the accruals basis they can elect to do so and both methods are likely to be examined in the ATT examinations in 2025. This article looks at some of the key differences in approach between the two methods and looks at an example to see how these differences could be examined.

There are some...