BIM74040 - Abolition of the cash basis: example of the ’catch-up’ charge

Suppose the catching up charge as at 1 May 1999 is £80,000. If the business has profits exceeding £80,000 (before Capital Allowances) in each of the next nine years, £8,000 will be charged to tax (as Case VI income or as adjustment income for 05/06 and following) in each of the nine years of assessment 1999/2000 to 2007/08 inclusive under FA98/SCH6/PARA4 (4)(a).

The balance of £8,000 will be taxed (as adjustment income)) in 2008/09 under FA98/SCH6/PARA4 (5).

However, if profits for the year ended 30 April 2002 are only £50,000 then only £5,000 will be charged to tax (as Case VI income) for 2002/03 under FA98/PARA4 (4)(b). The remaining £3,000 will end up being charged for 2008/09, along with the normal £8,000 for that year and any other amounts postponed from other years because of insufficient profits under FA98/SCH6/PARA4 (5).