The cash basis allows individuals carrying on a trade to calculate their profits on a ‘cash in, cash out’ basis, rather than using the traditional accruals method of accounting. This is simpler for many individuals as it removes the need for year-end adjustments such as the calculation of accruals and prepayments. The previous government was keen to allow and encourage more businesses to use the cash basis and, following a period of consultation, it introduced legislation in Finance Act 2024 that made significant changes to the cash basis. 

For 2023/24 and earlier tax years, an individual could elect to use the cash basis if:

• they did not fall within any of the exclusions from the cash basis (eg, partnerships with one or more corporate partners, limited liability partnerships and businesses using the herd basis or making averaging claims); and 
• their turnover for the year was £150,000 or less (£300,000 for universal credit claimants). 

 

They remained in the cash basis for future tax years unless their turnover exceeded £300,000 or their circumstances changed. 

For 2024/25 and later tax years, the cash basis is made the default basis and the turnover tests are removed. This means that if a person is not excluded from the cash basis they must use the cash basis to calculate their trade income for tax purposes for 2024/25. It is possible to elect to use the accruals basis. The election has effect for the tax year for which it is made and for every subsequent tax year until an election is made to move back into the cash basis. 

Care needs to be taken when completing the self-employment pages as the statements have changed. Box 8 on SA103S and Box 10 on SA103F now say: “If you’ve used traditional accounting rather than cash basis to calculate your income and expenses, put ‘X’ in the box.” Similarly, the partnership tax return SA800 has changed to say: “Tick box 3.9 if you used traditional accounting rather than cash basis to calculate your income and expenses.” Previously, these boxes required an ‘X’ if the cash basis was used. 

More businesses will now need to consider which basis best suits their circumstances. Where a business moves from the accruals basis to the cash basis, or vice versa, rules apply to ensure that no item of income is taxed twice, no item of expense is relieved twice and that no items of income or expense are left out of account completely. This means that, for example, there could be a transitional adjustment where a business moves from the accruals basis to the cash basis. 

Other changes include:

• the removal of the cap of £500 per year on interest deductions; and
• the introduction of more options for loss relief. Broadly, a loss calculated using the cash basis may be offset in the same way as a loss calculated on the accruals basis.

 

Further information

The changes to the cash basis and the implications for businesses moving from the accruals basis to the cash basis are considered in detail in an earlier TAXline article.

2024/25 is the first tax year in which trading profits are calculated on the tax year basis. For 2022/23 and earlier, profits were calculated by reference to the basis period and 2023/24 was a transitional year. 

Where transitional profits arose in 2023/24, the default position is that 20% of those profits are to be taken into account for 2024/25. It is possible to elect to accelerate the amount of transition profits charged to tax, in 2023/24 and in subsequent tax years. All remaining transitional profits must be taken into account in the tax year in which the business ceases. HMRC’s guidance includes examples of how the rules apply in different circumstances.

It is still possible to prepare accounts to a date other than 5 April (or any of 31 March-4 April, which are treated as 5 April for this purpose), in which case it may be necessary to apportion the results of one or more periods of account to calculate the profit or loss for the tax year. Provisional figures can be used where it is not possible to finalise accounts before the deadline for submitting the return. HMRC has published guidance on using provisional figures, including that any provisional figures should be clearly identified in the tax return and that an amended return should be submitted as soon as accurate figures are available.

For 2024/25:

• individuals with trade profits in excess of £12,570 will no longer have to pay class 2 national insurance contributions (NIC). Class 2 NIC will be treated as paid where profits are £6,725 or more; and
• the rate of Class 4 NIC paid on profits between £12,570 and £50,270 is reduced to 6% from 9%.

 

Individuals with trade profits of up to £6,725 continue to have the option of paying class 2 NIC on a voluntary basis to accrue rights to the state pension and other benefits.

Making Tax Digital (MTD) for income tax is being phased in for sole traders and landlords from:

• April 2026, where the person's annual turnover exceeds £50,000;
• April 2027, where their turnover exceeds £30,000; and
• April 2028, where turnover exceeds £20,000.

 

HMRC will use the sum of the following boxes from the 2024/25 tax return to determine if a taxpayer is within MTD income tax from April 2026:

• Self-employment turnover: SA103F box 15, SA103S box 9, SA200 box 3.6.
• Self-employment other income: SA103F box 16, SA103S box 10.
• UK property income: SA105 box 20, SA200 box 6.1.
• Other UK property income (grant of lease): SA105 box 22.
• Other UK property income (reverse premiums): SA105 box 23.
• Other UK property income (FHL): SA105 box 5.
• Foreign property gross income: SA106 box 14.
• Foreign property income (reverse premiums): SA106 box 16.

 

Checking 2024/25 tax returns as they are completed and identifying clients that will be mandated from April 2026 is a key step in preparing for MTD income tax.

Further information

Visit ICAEW’s MTD hub to learn more about MTD income tax.

There is no liability to capital gains tax (CGT) where the person’s total gains for the year are within the annual exempt amount. This was £12,300 for 2022/23. It was reduced to £6,000 for 2023/24 and is reduced again, to £3,000, for 2024/25. The annual exempt amount is halved for most trustees. 

At the time this measure was first announced, the then government estimated that, by 2024/25, 260,000 individuals and trusts would be brought within the scope of CGT for the first time.

It is possible to report and pay tax on some types of gain using HMRC’s real time CGT service. This will avoid the need to submit an ITSA return where the person is not otherwise required to do so. The deadline for using the real time service for a gain made in 2024/25 is 31 December 2025.

2024/25 saw an in-year change to the main rates of CGT applying to disposals of assets other than residential property and carried interest, from 10% to 18% for basic rate taxpayers, and from 20% to 24% for higher rate taxpayers. The change took effect for disposals made on or after 30 October 2024. 

As the ITSA return may not automatically calculate at the new main rates, HMRC has published an online calculator that can be used to work out an adjustment figure to be entered onto the return in:

• box 51 of the SA108 form, if filing the return on paper; or
• the adjustment to CGT box, if filing online.

 

The rate of CGT on disposals of residential property by higher rate taxpayers reduced from 28% for 2023/24 to 24% for 2024/25. 

Further information

Learn more about HMRC’s new calculator in this article: CGT adjustment may be needed to 2024/25 tax returns. 

The 2024/25 tax return includes new boxes (13.1-13.8 of the CGT summary pages) to report profits and losses realised on the disposal of cryptoassets. For 2023/24 and earlier, the figures were included on the boxes for other property, assets and gains. 

HMRC has been increasing its compliance activities in this area; for example, in August 2024 it launched a one-to-many campaign targeting taxpayers it suspected of not having paid the correct amount of tax. HMRC will have more information to draw on once the Cryptoasset Reporting Framework (CARF) is implemented in the UK. 

Further information

ICAEW’s TAXguide 01/2024 explains how cryptoassets are taxed. Recent developments, including CARF, were discussed in a recent Tax Track podcast, Taxing times: cryptoassets in the spotlight. 

The special tax rules for furnished holiday lettings (FHL) are abolished with effect from 6 April 2025. Preparing the 2024/25 tax return is a good opportunity to identify those clients with FHLs and to prepare for the 2025/26 tax return. 

This may be particularly important where the property is owned jointly by a married couple or by a couple in a civil partnership. Under the FHL rules, the individual is taxed on their share of the income from the property. However, once the FHL rules have been abolished, couples will be taxed 50:50 unless they have a Form 17 in place. Form 17 can be used where the property is held in unequal shares. It must be given to HMRC within 60 days of the date of the declaration.

Further information

Warning for couples with furnished holiday lets

The Tax Track podcast: Checkout time for furnished holiday lets