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Not all property businesses will move to the cash basis:
• property businesses will remain on the accruals basis if their cash basis receipts are more than £150,000
• there is an option to elect out of cash basis accounting and to use accruals basis instead
• the cash basis does not apply to property businesses carried out by a company, an LLP, a corporate firm (ie a partner in the firm is not an individual), the trustees of a trust or the personal representatives of a person.
Cash basis for unincorporated businesses
The government is also extending the cash basis option for the self-employed and trading partnerships. The cash receipts threshold
for being able to move to the cash basis will increase from the current £83,000 to £150,000 and the threshold for having to move back to the accruals basis will increase to £300,000 from April 2017.
Currently, the rules for the calculation of profits under cash basis accounting do not allow a deduction for expenditure of a capital nature, unless that expenditure qualifies for plant and machinery capital allowances under ordinary tax rules. This results in taxpayers needing to consider whether items are capital in nature, and whether they qualify for capital allowances. New rules will be introduced that list types of
expenditure which will or will not be allowed as a tax deduction.
It is proposed these changes will come into effect from the 2017/18 tax year.
Comment
There is no requirement for traders to switch to the cash basis. There are potential problems in adopting the cash basis including restrictions on interest relief on business finance and special calculations which need to be performed on moving to the cash basis. We can, of course, advise you of the issues involved.
Corporation tax rates
Corporation tax rates have already been enacted for periods up to 31 March 2021.
The main rate of corporation tax is currently 20%. The rate will then be reduced as follows:
• 19% for the Financial Years beginning on
1 April 2017, 1 April 2018 and 1 April 2019
• 17% for the Financial Year beginning on 1 April 2020.
Corporate tax loss relief
Currently, a company is restricted in the type of profit which can be relieved by a loss if
the loss is brought forward from an earlier accounting period. For example, a trading loss carried forward can only relieve future profits from the same trade. Changes are proposed which will mean that losses arising on or after 1 April 2017, when carried forward, will be useable against profits from other income streams or other companies within a group. This will apply to most types of losses but not to capital losses.
However, from 1 April 2017, large companies will only be able to use losses carried forward against up to 50% of their profits above £5 million. For groups, the £5 million allowance will apply to the group.
6 Business Tax
Budget Summary 2017