If you have your own business and usually have amounts owing to you by your customers, you could be in for a pleasant surprise when your tax bill is calculated for tax year 2024/25.

The default way that income earned by sole traders (and certain partnerships) is taxed is changing from 6 April 2024. This has been simplified and, unless you or your accountant elect differently, you will only be taxed when you receive cash from your customers (rather than when you earn the income). Therefore, if you have some slow payers, this could improve your cashflow as this income will not be taxed.

A simple example is, say, you’re a plumber and have just completed a job for £10k on 31 March 2025, and are paid on 10 May 2025. This income would be taxable in tax year 2024/25 under the old rules (based on when the work is done). Therefore, the Income Tax on this (say, £4k based on 40%) would be payable by 31 January 2026. However, going forward, this will be taxed when you receive the cash, and therefore will fall into 2025/26 tax year. This means the tax will not be payable until 31 January 2027. But also, more significantly, you are no longer expected to pay tax on income you have not physically received.