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Cash basis ― joining and leaving

Produced by a Tolley Owner-Managed Businesses expert
Owner-Managed Businesses
Guidance

Cash basis ― joining and leaving

Produced by a Tolley Owner-Managed Businesses expert
Owner-Managed Businesses
Guidance
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The Cash basis - overview guidance note explains the criteria to be able to use the cash basis and the Cash basis expenditure guidance note explains the treatment of expenditure. This note explains the consequences of joining and leaving the cash basis.

Joining the cash basis

On joining the cash basis, transitional adjustments may be required to ensure that income is not taxed twice and that expenditure is only relieved once. For example, if an expense was included in advance of its payment in the final profits calculated under the accruals basis (ie under generally accepted accounting practice (GAAP), see the Adjustment of profits ― overview guidance note), it cannot also be deducted as an expense if it is actually paid in the first period in which profits are calculated under the cash basis.

If the business has previously calculated profits on the accruals basis, receipts in the first year calculated under the cash may include amounts received from customers who had not settled their debts by the end of the previous tax year (debtors).

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