Cash basis as new HMRC default

Hello,

Self-employed/sole trader here, with pretty basic tax needs (and understanding!) – for which QuickFile has sufficed for the past few years.

I’m just in the process of submitting my 2023-24 tax return, and I note that the HMRC pages say that for 2024-25 the default way to work out income and expenses will be the ‘cash basis’.

While in essence I understand what this means I’m not really sure how or if it applies to QuickFile, and/or how one might ensure that QuickFile is accounting in this way? I’ve had a search of the support pages and it seems that QuickFile doesn’t meaningfully support cash basis?

As I understand it, HMRC will continue to allow the accruals method, so I guess this change doesn’t matter terribly to existing QuickFile users – I guess we can just tell HMRC we’re sticking with accruals. However, given that this is to be the HMRC’s new default method for self-assessment, I’m wondering why QuickFile wouldn’t be on top of this shift?

What might I be missing or not understanding?

Thanks!

Hello @Scooder

You can process under cash accounting.

You can adjust this in your vat settings.

You can also run a cash based profit and loss report (Reports > Show All Reports > Other Tab > Cash Based Profit and Loss Report

When HMRC release more information on MTS self assessment we will be able to develop more functionality.

We have a blog on this which will be updated as more information is made available by HMRC

Thanks… help my decrepit brain here: where do I find this option in my VAT settings? (And presumably this is no good for those not VAT-registered? I am, as it happens, so fine for me…)

Hello @Scooder

You can find it in Reports > Vat Returns > Settings

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Awesome – thanks! And thanks again, as apparently I have to type a minimum of 20 characters to be able to post. :wink:

The question wasn’t about VAT, it was about cash basis accounting for self assessment income tax.

@Scooder cash accounting for VAT and cash basis for SA are two separate and independent things - you can be on cash accounting for VAT with accrual basis income tax, or accrual accounting VAT with cash basis income tax, or any other permutation. QuickFile has decent support for VAT cash accounting but very little for cash basis SA, only the one cash based P&L report that Steve mentioned above.

@ian_roberts Thanks – this is really helpful, and does better understand my original question. Since I have your attention, I might ask to draw a little more on your knowledge…

I am self-employed, now at a very low level, but also remain VAT-registered (mainly for historical reasons, and laziness in deregistering). So, while I understand I could mix the cash-accruals streams, as it were, I think it would make more sense to synchronise them both to cash accounting (given that the HMRC states this is now the default for all self-assessment. Would you agree? Or is there any particular benefit for going cash basis for self-assessment and sticking with accrual for VAT?

(My business affairs are now very simple with a very limited number of clients, all of whom pay regularly and on time.)

The difference generally comes down to how long credit terms you offer to your customers and take from your suppliers. Under the cash-based systems you only have to pay the tax you owe (whether VAT or income tax) once your customers have paid you, but conversely you can only deduct for the expenses you have incurred once you have paid your suppliers. Under the accruals-based systems you owe tax on your sales as soon as you have raised the invoice (even if you’ve not yet been paid), but you are eligible to deduct for your purchases as soon as the supplier has invoiced you (even if you’ve not yet paid them).

All other things being equal, if you take long credit from your suppliers but your customers pay you up front then you’ll have better cashflow on accruals basis - this is how it worked out for me as a retailer where all my sales are paid immediately but my suppliers give me up to a month to pay them.

If you offer credit to your customers but your suppliers require payment up front then you’ll have better cashflow on the cash-based methods (cash basis for SA, cash accounting for VAT).

But for detailed advice I’d always check with a real accountant.

@ian_roberts Thanks – really helpful. As HMRC has been explicit that self-assessment is cash basis for 2024-25 (ie, now), it seems logical to me – as a sole trader with very simple affairs – to switch to cash basis for VAT also, just so everything is in sync.