Sarah Bradford explores the proposed reforms to the basis period rules, and the impact of the move to the tax year basis on profits taxed in the transitional year.
Smaller unincorporated businesses can elect to compute their taxable profits using the cash basis rather than the traditional accruals basis.
The cash basis is a much simpler method as it only takes account of cash in and cash out. However, it will not be for everyone.
The cash basis
Under the cash basis, income is reflected only when payment is received and expenses are taken into account only when paid, regardless of when the work was undertaken or the expenses was actually incurred. There is no need to account for creditors and debtors or to calculate pre-payments and accruals.
Capital expenditure is treated differently under the cash basis too. Special cash basis