Cash Accounting Updates: Integrating Them into Sage 50 Accounts
In 2023, the government began evaluating income tax cash basis rules to see how they could be made simpler and expanded to more businesses. Prior to the new tax year in April 2024, more than two-thirds of eligible businesses were not using the cash method, even though they could benefit from it.
In this article we look at the key changes in cash accounting for 2024, and how these can be integrated into your Sage 50 Accounts software.
Key Changes in Cash Accounting for 2024
Transition to Cash Basis as Default
Starting from April 6, 2024, cash basis accounting will become the default method for calculating the profits of eligible sole traders and partners with trading income. However, you can still choose to use the accruals basis, but you’ll have to opt out of the default on your tax return.
Removal of Turnover Thresholds
The turnover thresholds that previously restricted smaller businesses in using cash basis accounting have been completely removed. This change means that regardless of your turnover, you can choose to use cash basis accounting without the limitations that were once in place. Previously the limits capped entry at businesses with a turnover below £150,000 and required a switch to accrual basis once the turnover reached £300,000.
Updates on Interest Deductions and Relief for Losses
The updates also include the removal of the £500 limit on interest deductions when using cash basis. The restrictions on using relief for losses made under cash basis have also been lifted, providing more flexibility and benefit to businesses using this method.
Preparing Sage 50 for the Cash Accounting Updates
Backing up Existing Data
Before implementing the new cash accounting updates in Sage 50, we advise backing up your existing data. This ensures that you can restore your data if necessary. Use the Back Up or Automatic Cloud Back Up options available in Sage 50 Accounts. Make sure to include all company data files, customised forms, and attachments in your backup.
Configuring Sage 50 for Cash Basis Accounting
Once your data is securely backed up, configure Sage 50 for cash basis accounting. In Sage 50, select the option for cash-basis accounting, which recognises income and expenses when cash is actually received or paid out. If you are switching from accrual to cash basis within Sage 50, you’ll need to set up a new company, as switching methods is not permitted once the company is established.
Testing the New Setup
After configuring Sage 50, it’s important to test the new setup to ensure everything works as it should. Test transactions using both the cash basis and accrual settings to ensure that income and expenses are recorded correctly.
Sage 50 Training with Softext
As a Sage 50 Accounts business partner, we provide training in all elements of setting up and using the software. We also provide technical support to keep everything running as it should.
Visit our Sage 50 Accounts Training pages for more information. Including bespoke Sage training, online courses for Sage 50 accounts, and Sage training manuals.