|The ‘cash basis’ scheme can be used by sole traders and other unincorporated businesses with an annual income of less than £79,000 to simplify their accounting processes, saving both time and money.
Using the scheme involves a business simply working out the cash received in a tax year, less any money spent on allowable business expenses. HMRC says that this means small businesses won’t need to spend time at the end of the tax year making complex accounting adjustments, and other calculations designed for larger businesses.
However, the small businesses who benefit from the simplicity of the cash basis, could be limited to enterprises, such as hairdressers, window cleaners, taxi drivers, gardeners, painters and decorators, plumbers and electricians.
Also, unincorporated businesses can choose to use ‘simplified expenses’. This involves using flat-rates, instead of making complex calculations of actual business expenses. It can be used for the following expenses:
- business costs for vehicles;
- business use of your home; and
- private use of a business premises as a home.
HMRC’s Carol Lunney said: “The cash basis and simplified expenses schemes can help save small businesses time and money. With a new tax year on the horizon, now is the time to start thinking about them. So, if you’re eligible, go online and find out more about the schemes at GOV.UK.”
The ‘cash basis’ and ‘simplified expenses’ schemes were launched in April 2013. The £79,000 threshold is aligned to the VAT registration threshold. The VAT threshold has regularly been increased in line with inflation at the start of each tax year, so the cash basis threshold may be higher from April 6, 2014. Changes are normally announced at the Budget.
Once a business has entered the cash basis scheme they can continue to report in this way until their income reaches double the VAT threshold (currently £158,000).
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Susie Hughes © Shout99 2014