Income Tax (Trading and Other Income) Act 2005 section 24A

Cash basis to apply by default

Section 24A establishes that the cash basis of accounting is the default method for calculating trading profits for income tax purposes, unless the trade is specifically excluded or the taxpayer elects to use the accruals basis instead.

• Trading profits must be calculated on the cash basis by default — meaning income is recognised when received and expenses when paid, rather than when earned or incurred.
• There are two exceptions: where the trade is an "excluded trade" for the tax year (for example, certain larger or more complex businesses), or where the taxpayer has made a formal election to use the accruals basis instead.
• Where the cash basis applies, certain standard rules that normally govern the calculation of trading profits — specifically the rules on receipts and expenses, capital allowance adjustments, and animals kept for trade purposes — are disapplied.
• The rules on calculating profits for Lloyd's underwriters are not affected by this provision and continue to operate under their own separate regime.