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Posted Tue, 28 May 2024 12:29:29 GMT by ferdischwarz7
I am a musician whose income derives principally from royalties due to my recording/composition catalogue. These come from worldwide sources. In the years to 31 March 2024 my income has been taxed on the cash basis as my turnover has been under the £300,000.00 limit. However in the year ended 31 March 2024 my turnover on the cash basis was £160,000.00. In addition, I have just received a royalties notification that I am owed (at today’s date) royalties up to 31 March 2024 of £380,000. This, if added to the £160,000.00 turnover, will put me over the threshold to be eligible to be on the cash basis. I further note that from 1 April 2024 the cash basis limit has been removed for the 2024/2025 onwards. However in my case it appears I am in the last year where I have to change from cash basis to accruals basis.
 My question is that under BIM 70071 the following seems to apply:
 “BIM70071 - Cash basis: transitional adjustments: leaving the cash basis: calculation S231 ITTOIA 2005 There are 2 steps to the transitional adjustment calculation: Step 1 1. Add together amounts that customers had owed to the business at the end of the last cash basis period, and add to this the amounts paid for any stock of goods held at the end of the last cash basis period; 2. Add together amounts that the business had owed to suppliers at the end of the last cash basis period. Add to this any amounts of income that the business received, in the last cash basis period, where the work for the customer had not been done as at the end of that period. Step 2 Deduct the total of 2 from the total of 1. If the result is a positive amount, that is adjustment income. This adjustment income is spread for tax over 6 tax years. One sixth of the adjustment income is charged to tax, starting in the first period after leaving the cash basis. An election can be made to accelerate the tax charge on this adjustment income. If the result is a negative amount, that is an adjustment expense. This is deducted from the taxable profits of that first period after leaving the cash basis. There is no spreading.”
 Will I be able to spread this sum over the six years as the correct way of declaring my income? Your help is greatly appreciated.

Name amdt & email details removed admin .
Posted Mon, 03 Jun 2024 10:39:11 GMT by HMRC Admin 10
If you are using the cash basis, the payment of the royalties  would fall into the 24/25 tax year as it has not yet been paid.
Posted Mon, 03 Jun 2024 11:20:08 GMT by ferdischwarz7
Thank you for your response! Were I to transition from cash basis to accruals basis for 23/24 would these amounts be drawn into that year? And, if so, would BIM70071 be the correct way to treat this?
Posted Wed, 05 Jun 2024 14:52:07 GMT by HMRC Admin 20
Hi ferdischwarz7,
Please have a look at HS222 (HS222 How to calculate your taxable profits (2024)) for guidance in entereing / leaving the cash basis.  
There is an example at BIM70071
Thank you.

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