What does section 148ZA of ITTOIA 2005 do?

Section 148ZA provides that the rules in Chapter 10A of Part 2 of ITTOIA 2005 do not apply where a trader calculates their trading profits using the cash basis of accounting. This means all adjustments and provisions within Chapter 10A are entirely disapplied for cash basis traders, simplifying their profit computation.

What is the cash basis of accounting for UK tax purposes?

The cash basis is a simplified method of calculating taxable profits available to eligible small unincorporated businesses in the United Kingdom. Under this method, income is recognised when received and expenses when paid, rather than when earned or incurred as under traditional accruals accounting.

When was section 148ZA introduced and by which legislation?

Section 148ZA was introduced by Finance Act 2013, Schedule 4, paragraph 27. It formed part of the broader legislative package that established the cash basis regime for small businesses, ensuring that provisions designed for accruals accounting would not apply to those using the simplified cash basis.

Does Chapter 10A apply to a sole trader using the cash basis?

No. If a sole trader uses the cash basis to calculate their trading profits, section 148ZA disapplies Chapter 10A entirely. The trader simply records income when received and expenses when paid, without needing to consider any of the adjustments or provisions contained in Chapter 10A of ITTOIA 2005.

Income Tax (Trading and Other Income) Act 2005 section 148ZA

Chapter not to apply where cash basis used

Section 148ZA provides that the rules in Chapter 10A do not apply when a trader calculates their profits using the cash basis of accounting.

Chapter 10A is disapplied entirely where the cash basis is used to calculate trading profits
This means none of the adjustments or provisions in Chapter 10A are relevant to cash basis traders
The cash basis is a simplified method of accounting available to eligible small businesses, which records income and expenses when money is received or paid
This exclusion was introduced by Finance Act 2013 as part of the broader package of rules establishing the cash basis for small businesses

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