BIM74015 - Abolition of the cash basis: when does the new legislation first apply?

Applies for accounting periods beginning after 6 April 1999 - FA98/S42 (3)

Example

For a business with a year end of 30 April the accounts for the year ended 30 April 1999 may be on the cash basis and those for the year ended 30 April 2000 and subsequent years must be on the new ‘true and fair view’ basis. This means in particular that businesses will need to calculate ‘opening’ figures at (in this example) 1 May 1999 on the new basis.

For income tax payers ‘accounts’ means the Standard Accounts Information (‘SAI’) entered on the Tax Return or Partnership Return; there is no requirement in the Taxes Acts to prepare other accounts, or for them to be in any particular form. Thus taxpayers can continue to prepare accounts for their own purposes on a cash or conventional basis, provided that the SAI is adjusted onto a ‘true and fair view’ basis.

FA1998/S44 imposes the provisions of FA98/SCH6 when there is a change, from one period of account to the next, in the accounting basis on which profits are computed for tax purposes. Schedule 6 only applies if the old basis was in accord with the law and practice immediately before the change. If the accounts immediately before the change were not prepared on an acceptable basis they should be put right so far as the law permits.