UK: Reforming the cash basis expenditure rules

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At Budget 2016, the government announced that it would explore options to simplify the tax rules for businesses, self-employed people and landlords. A consultation covering 4 discrete areas of simplifying tax paid by unincorporated businesses, including reforming the capital/revenue divide in the cash basis and simplified cash basis for unincorporated property businesses, was published on 15 August 2016 and ran until 7 November 2016.

On 31 January 2017, HMRC launched another consultation to introduce legislation in Finance Bill 2017. It is proposed to add a new section in the Income Tax (Trading and Other Income) Act 2005. The clause replaces a general prohibition on deductions for capital expenditure in calculating taxable profits using the cash basis, with a more focused and limited prohibition on deductions for certain specified capital expenditure. The new measure will have effect on and after 1 April 2017. The consultation runs to 28 February 2017.

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