cash basis on sticky note surrounded by stationary

Expanding the cash basis for the self-employed

16 May, 2023

We have responded to the HMRC consultation Expanding the cash basis for the self-employed.

This consultation intends to address concerns that the cash basis is currently underutilised, with HMRC estimating that more than 2/3 of eligible businesses (c. 3m in total) don’t use it currently, and a further 200k are not eligible at all.

Our key points are:

  • There is limited merit in significantly increasing or removing the cash basis entry and exit thresholds. There are many reasons beyond tax why a business may choose the accruals basis, and the cash basis is not suitable for many larger businesses.
  • If the cash basis is made the default, this should be accompanied by relaxation of the current interest and loss restrictions. An extensive education campaign will also be required to ensure taxpayers are aware of the change and apply the cash basis correctly.
  • The current interest deduction limit under the cash basis of £500 is too low, and should be increased significantly.
  • Sideways loss relief should be allowed for cash basis losses, subject to the general reliefs cap in s24A ITA 2007.

More details on the above points can be found in our full response.