Cash accounting was implemented to simplify account preparation for small businesses for tax purposes. Previously, it was applicable only to businesses with a turnover of up to £300,000. However, starting in 2024, it will become the default method for sole traders and partnerships. Notably, it won’t apply to partnerships with corporate members or limited liability partnerships.

Businesses affected will have the option to opt out of cash accounting and adhere to Generally Accepted Accounting Practice (GAAP), necessitating adjustments for accruals, prepayments, and other variations. Furthermore, businesses will have the flexibility to switch back to cash accounting if desired. Transitional regulations have been established to prevent the duplication or omission of income and expenses.

Feel free to reach out to us for a discussion on how this change might impact your taxable profits.