Capital Allowances Act 2001 section 1A

Capital allowances and charges: cash basis

Section 1A sets out the rules governing capital allowances and charges for businesses that calculate their profits on the cash basis, including the key exception for cars and transitional rules when switching from accruals to cash basis accounting.

• Businesses using the cash basis are generally not entitled to capital allowances and are not liable to balancing charges under the Capital Allowances Act
• An important exception applies to cars: capital allowances, balancing charges and disposal values relating to cars continue to apply even when the cash basis is used
• Where a business switches to the cash basis after previously incurring qualifying capital expenditure under the accruals basis, any balancing charges and disposal values relating to that earlier expenditure still apply if the expenditure would not qualify for a cash basis deduction
• A person "enters the cash basis" for a tax year if they use the cash basis for that year but did not use it for the previous tax year, whether the activity is a trade, profession, vocation or property business