Small firms urged to save time and money by switching to cash basis

We are advising small businesses to consider whether they could save valuable time and money by switching to a scheme that allows them to be taxed on money flowing into and out of their business, rather than using full accounting rules.

HM Revenue and Customs (HMRC) first launched the cash basis scheme last year, but is urging more small firms to consider using the scheme ahead of the new tax year, which starts on 6 April.

The scheme can be used by sole traders and partnerships with an annual income of less than £79,000, and involves a business simply working out the cash received in a tax year, less any money spent on allowable business expenses.

It would be particularly suitable for small businesses such as hairdressers, window cleaners, taxi drivers, gardeners, painters and decorators, plumbers and electricians.

This means small businesses do not need to spend time at the end of the tax year making complex accounting adjustments and other calculations more suited to larger businesses, or pay tax on money before they receive it.

Unincorporated businesses can also choose to use simplified expenses, which involve using flat rates for certain costs instead of making complex calculations of actual business expenses. It can be used for:

• business costs for vehicles;
• business use of the home; and
• private use of business premises as a home.

Dan Aldworth, senior manager said: “Many smaller businesses may not be aware that it could be more beneficial for them to switch to the cash basis scheme, saving them time and money – both of which are extremely precious for small business owners.

“If you are unsure whether you are eligible, whether you could benefit or how to go about switching, then it is best to seek advice as soon as possible, particularly with the end of the tax year now fast approaching.”

For further information, please contact Dan.