Taxable profits are normally calculated in accordance with Generally Accepted Accounting Practice. This means that profits are determined on the accruals basis by reference to the amount earned in the year, rather than by reference to cash received and paid out.
However, small eligible businesses can elect to use the simpler cash basis to work out taxable profits. An election applies for the tax year for which it is made and for subsequent tax years.
The cash basis option is only available to the self-employed and to individuals in partnership whose receipts are not more than the VAT threshold (£82,000 from 1 April 2015). The threshold is doubled where the claimant receives universal credit.
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