Many small, unincorporated businesses prefer to use ‘cash basis’ for working out taxable income. Under this procedure, contributor will be taxed on the basis of the cash that passes through their books, rather than having to tackle complex and time-consuming calculations planned for larger businesses, who generally have to use ‘traditional’ procedures for tax purposes. While relieving the administrative problems of preparing ‘traditional’ accounts, using the cash basis can also guide with cash flow.
For the 2017/18 tax year onwards, the eligibility income threshold for using the cash basis has been importantly raised – it is now £150,000 (previously £83,000), meaning that many more small ventures can now use the scheme. The exit threshold, above which ventures must cease to use the cash basis, has also been raised from 6 April 2017 to £300,000. This means that many businesses will be able to continue using the scheme as they continue to produce.