Cash Basis Election and Cessation

Cash Basis Election and Cessation

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I have a client who has run a small business for many years.  His turnover is circa £50,000 per annum.

His accounts for the year ended 5 April 2014 were on the accruals basis and it was decided that the Cash Basis was not appropriate to him for that year and so no election to use this method was made.

I am in process of completing his accounts for the year ended 5 April 2015 and he has told me that he ceased trading at the end of September 2015 in order to take up full time employment.

As things stand at the moment, given his other income, he will be subject to 40% tax on part of his income for 2014/2015 if his accounts are left on the accruals basis.

However, if he decides to adopt the Cash Basis for that year and the final period to 30 September 2015 then it appears that this will not be the case, mainly due to the necessary Transitional Adjustments required to move from the accruals basis to the Cash Basis.  Even taking into account post cessation receipts (there are some invoices which were settled by customers after he ceased trading but will need to be included in his 2015/2016 tax return) there appears to be an advantage in switching to the Cash Basis.

One thing I am having trouble confirming is that the GAAR rules will not take effect.  We are clearly using the Cash Basis in this instance as it produces a tax advantage, but is there some exclusion which means that it will not be caught, or am I missing the point?

Any thoughts would be appreciated.

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By Dowland
05th Nov 2015 13:14

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