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Accruals basis is when income and expenditure are recorded when they are incurred and not when they are paid.
Cash basis is a method of recording these accounting transactions when they are paid or received.
Why Use Cash Basis?
Cash basis accounting is a simpler process with less bookkeeping requirements.
Tax can be deferred as it is only paid when monies have been received.
It is a useful method of managing cashflow, as the accounts are not affected by debtors, creditors, accruals and prepayments.
Who Can Use The Cash Basis?
The cash basis is only available for businesses that are conducting a trade, profession or vocation which are charged to income tax, i.e. those businesses which would otherwise be charged to tax under ITTOIA 2005, Pt. 2 (ITTOIA 2005, s. 31E(1)).
Therefore, it is only available to those being charged under income tax.
Your turnover under the sole trade or partnership should be less than £150,000 per year to be able to use this.
This is not available to Limited Companies as they are not charged under ITTOIA and are instead subject to corporation tax under section 46 CTA 2009.
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