How to enter the cash on withdrawal basis for a Sole Trader or Partnership

Introduction

In Business Tax, the cash basis screen inputs the details in the additional information box on page 4 of the partnership return.

The screen is the same for both Sole Traders and Partnerships.

For a sole trader, select Edit | Cash Basis


For a partnership, select Trading and Professional Income (located along the left side of the screen), and double-click Withdrawal of Cash Basis Adjustment

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The following screen displays.

Total catch-up charge - enter the total catch-up charge. If the catch up charge is negative, then the adjustment is included in box 3.63 and added to any other expenses in this category. The negative adjustment is included in the Trade Profit (Loss) Computation to give the correct Trade Profit.
First Year of Adjustment - from the drop-down list, select the first year in which the catch-up charge. The total will be charged to tax in 10 instalments over the tax years that follow.  
Catchup Period - pre-2014 this will be 10 years. From 2014 onwards, select the number of years from the drop-down list.
Catch-up - the catch up charge is automatically calculated at 10% (for a catchup period of 10 years) and 1/6th (for a catchup period of 6 years) of the original total adjustment.
Override - enter the amount to be charged to tax in the tax year. This amount may not be 10% or 1/6th of the catch-up charge if:

      • the partners have elected to be charged on more than the minimum instalment

      • chargeable profits are lower than the catch-up charge in which case, the amount charged to tax may be capped to be 10% of the chargeable profits

Each amount to be charged to tax should be entered. Business Tax will show a running total of the amount outstanding and the amount charged to tax so far.

 

Warning messages

If 10% of the profit is less than 10% of the adjustment the partnership may restrict the amount to be charged to tax to 10% of the profit.

If Business Tax detects that this is the case the following warning message displays:

"The amount entered is more than 10% of the profit which is £x. Do you want to use 10% of the profit rather than use 10% of the catch-up charge?"


Click Yes to replace the amount you have entered with 10% of the profit. Click No to continue with the amount you entered.

Business Tax will also warn you if the amount you have entered is smaller than 10% of the catch-up charge.