Lee Sharpe looks at why the cash basis is so popular with HMRC, even though taxpayers seem less impressed.
HMRC is working hard to make sure those businesses that are subject to income tax adopt the cash basis. This article looks at the background to the implementation of the new regime, and why HMRC seems so keen on it.
Historically, of course, case law and legislation have favoured generally accepted accounting principles (GAAP), which in turn cover the accruals basis (ITTOIA 2005, s 25 for trades, and s 272 (as was) for property businesses). The cash basis does away with accruals, provisions, depreciation and amortisation and (in theory) the distinction between capital expenditure and ordinary ‘revenue-stream’ expenditure.
Background to introduction of cash basis
Traders were formally given the option to apply the cash basis from 2013,
