The change seems to have met with some resistance in parts of the profession, implying, as it does, a simplification and deskilling of the work, and potentially the loss to the client of the useful management tool which is provided by a set of accruals accounts. However, there is nothing to prevent a practitioner from producing two sets – the proverbial “one set for the clients and one for the tax man” which has long been the dream of the less reputable taxpayer. Practically most software can produce sets at the press of a button, but, if not, it should be simple enough to simply make up a cash basis set of accounts to 4 April, then add in the accruals on the next day and print a new set. Alternatively, accruals accounts can be produced in the usual way then adjusted on a spreadsheet to convert them into cash accounts.

Whilst it is accepted that those on the herd basis or those who may wish to average will be unable to use the cash basis, the advantages are significant, particularly in the arable sector. A real example, largely based on a sole trader’s actual figures is shown here, and this illustrates that, where there are significant year end balances, the change will give a one-off deferral of some £190,000 of profit, converting a modest profit into a very valuable (and offsetable) loss. In this case, where there is a substantial non-farm income, it will remove an entire year’s income for higher tax rates, and, in many ways, tax permanently deferred is close to “tax saved”. For those unwilling to lose the benefits of averaging, it is also worth noting that any increase in tax when a business comes off the cash basis can be spread over six years (see BIM70071).

As the impact starts to sink in, other factors are coming to light. The completion of accounts is often delayed because of unknown assets or liabilities – insurance claims, bad debts and legal proceedings can all prevent the finalisation of accruals accounts. Under the cash basis they can all, entirely legitimately, be held over until next year.

Finally, the availability of the cash basis may open another small can of worms (or close it!). Under the hobby farming rules, loss reliefs are restricted where the farm has failed to show a profit for five consecutive years. If accounts are prepared on a cash basis, it would appear that, in most cases, a business will be apparently able to create profits during the five-year period simply by deferring or accelerating sales or expenditure from one year to another. Since the words “profit” and “loss “are no longer linked to accepted accounting practice for Income Tax purposes, it will be interesting to see how HMRC react to such cases in future. A test case in the making, perhaps?