There are circumstances where using the cash basis of accounting can reduce your profits and create a permanent tax saving. These include where calculating
your profits using the normal basis of accounting means:
• you’re liable to the high income child benefit charge (HICBC)
• some of your income falls into a higher tax bracket; or
• your taxable income exceeds £100,000.
John is self-employed. His accounts (prepared on the normal accruals basis) for the year ended 31 March 2019 show a profit of £61,000.
If the cash basis of accounting were used his profit would be £52,000. John’s spouse receives child benefit for two children for 2018/19 of £1,789.
Because his profit for that year is greater than £50,000 John is liable to the HICBC. The maximum charge would apply because his income exceeded £60,000,
i.e. the charge would be £1,789. However, using the cash basis of accounting would reduce John’s profits and therefore the HICBC to £358 saving him