ATT calls cash basis changes ‘limited’

Jun 2, 2023

A Government consultation on changes to cash basis accounting has been called ‘limited' by the Association of Taxation Technicians (ATT).

For any reforms to be effective, the ATT believes there should be an overhaul of permitted interest deductions and loss claims for businesses using cash basis accounting.

The cash basis accounting method allows self-employed people to calculate their profits and income tax based on when income is received or payments are made.

Currently, the Government is consulting on whether more businesses should be able to ‘take advantage' of the accounting method. The proposals include:

  • increasing the turnover thresholds for businesses allowed to use the cash basis
  • setting the cash basis as the default, with an opt-out for those who wish to use the accruals basis
  • increasing the £500 limit on interest deductions
  • relaxing restrictions on using relief for losses.

But the ATT believes that extending the thresholds won't encourage business owners to start using the method unless there are significant changes around the interest rules.

Senga Prior, chair of the ATT Technical Steering Group, said:

"We believe that relaxing or removing the loss relief restrictions would encourage businesses to use the cash basis.

"In particular, new businesses that may be expecting to make a loss in their earlier years, and would otherwise have to wait a significant time to get relief through carrying these forward against future profits."

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