At Budget 2017 the Chancellor confirmed that the entry threshold for cash basis accounting is to be raised to £150,000 in a move designed to give more small businesses the choice to benefit from the simplified approach to accounts
The increase was subject to consultation as part of a package of measures proposed as part of HMRC’s Making Tax Digital plans.
Legislation will come into force on 6 April with effect for the tax year 2017/18 which will increase the threshold for the cash basis from £83,000, which is the 2015/16 threshold, to £150,000.
The exit threshold will continue to be set at double the entry threshold, so it will increase to £300,000.
The entry and exit threshold for self-employed universal credit claimants will continue to equal the exit threshold of non-universal credit claimants and will increase to £300,000.
This will be implemented through secondary legislation, a draft of which was published on 31 January 2017.
HMRC says it expects this measure to have a significant impact on businesses. An estimated 135,000 additional small businesses will be eligible to choose the cash basis for their business, with 87,000 estimated to take up that choice.
The impact on the Exchequer in 2017/18 will be negligible according to HMRC’s analysis, rising to an expected £20m reduction in the tax take the following year, and £65m in 2019/20. In 2020/21 tax revenues will be reduced by an estimated £150m, and then by £45m in 2021/22.
HMRC’s policy paper, Increase to the cash basis threshold for unincorporated businesses, is here.
