Finance Act 2024

Part 1 Main provisions

Introduction of cash basis default

1 Chapter 3 of Part 2 of ITTOIA 2005 (trade profits: basic rules) is amended as follows.

2 After section 24 insert—

“Basis of accounting

24A Cash basis to apply by default

(1) The profits of a trade for a tax year must be calculated on the cash basis, unless—

(a) the trade is an excluded trade in relation to the tax year (see section 25B), or

(b) an election under section 25C(1) has effect in relation to the trade for the tax year.

(2) In this Part—

(a) references to calculating the profits of a trade on the cash basis are references to doing so in accordance with this section, and

(b) references to a trade in relation to which the cash basis applies are to a trade the profits of which are required by virtue of subsection (1) to be calculated on the cash basis.

(3) Chapter 3A contains provision about the calculation of profits on the cash basis and the application of the rest of this Part in relation to the cash basis.

(4) Where the cash basis applies in relation to a trade, sections 27, 28 and 30 do not apply in relation to the calculation of the profits of the trade.

(5) This section does not affect provisions of the Income Tax Acts relating to the calculation of the profits of Lloyd's underwriters.”

3 In section 25 (generally accepted accounting practice)—

(a) in subsection (1), after “trade” insert “to which the cash basis does not apply”;

(b) omit subsection (3).

4 Omit section 25A (cash basis for small businesses).

5 Before section 26 insert—

“25C Election for profits to be calculated in accordance with GAAP

(1) A person who is or has been carrying on a trade, other than an excluded trade, may elect for the profits of the trade to be calculated in accordance with generally accepted accounting practice (instead of on the cash basis).

(2) An election made in relation to a trade under subsection (1) has effect—

(a) for the tax year for which it is made, and

(b) for every subsequent tax year (subject to subsection (3)).

(3) An election made in relation to a trade under subsection (1) ceases to have effect if—

(a) the trade is an excluded trade in relation to a tax year, or

(b) the person who is or has been carrying on the trade, other than an excluded trade, elects to calculate its profits for a subsequent tax year on the cash basis.

(4) Subsection (3) does not prevent an election being made under subsection (1) for any subsequent tax year.

(5) For the meaning of “excluded trade”, see section 25B.”

Removal of turnover restrictions etc

6 In Chapter 3A of Part 2 of ITTOIA 2005 (trade profits: cash basis) omit—

(a) section 31A (conditions to be met for profits to be calculated on cash basis) and the italic heading before it,

(b) section 31B (relevant maximum), and

(c) section 31D (effect of election under section 25A) and the italic heading before it.

Removal of interest payments restriction

7 In Part 2 of ITTOIA 2005—

(a) in Chapter 4 (trade profits: rules restricting deductions) omit section 51A (cash basis: interest payments on loans), and

(b) in Chapter 5 (trade profits: rules allowing deductions) omit section 57B (cash basis: interest payments on loans) and the italic heading before it.

Removal of loss restrictions

8 In ITA 2007—

(a) in Chapter 2 of Part 4 (loss relief: trade losses) omit section 74E (no relief where cash basis used to calculate losses) and the italic heading before it, and

(b) in Chapter 1 of Part 8 (relief for interest payments), in section 384B(1) (restriction on relief where cash basis applies)—

(i) for the words from “has made” to “profits of” substitute “carried on”;

(ii) for “carried on by the partnership” substitute “the profits of which”.