HMRC has published guidance on the cash basis available from 2013/14 to sole traders and partnerships with an income no greater than the VAT threshold.
The cash basis may suit smaller businesses, HMRC says, ‘because, at the end of the tax year, you won’t have to pay income tax on money you haven’t received yet’. A system of ‘simplified expenses’ may be used for the use of a home and vehicles for business.
Tax professionals have criticised the new system, which HMRC describes as ‘simpler income tax’, for its complexity. Responding to last month’s Budget Yvette Nunn, president of the Association of Taxation Technicians, welcomed ‘abandonment of the mandatory use of fixed-rate motoring expenses, which could have been a stumbling block for many potential users of the proposed scheme’.
She added: ‘Whilst the rules are likely to remain more complicated than they needed to be it is also good to see that HMRC has listened to advice from bodies like the ATT and scrapped the idea of traders who take an item from stock for personal use having to account for the profit they would have made if they had sold the item. This idea (the Sharkey v Wernher principle in tax-speak) is difficult to explain and apply in a complex business; it had no place in a simple system.’
The legislation is set out in the Finance Bill, at clause 17 and schedule 4. ‘Existing income tax legislation requires the taxable profits of a business to be calculated in accordance with Generally Accepted Accounting Practice,’ HM Treasury said in an explanatory note to the Bill. ‘This means that profits are computed on the accruals basis.’
HMRC has published guidance on the cash basis available from 2013/14 to sole traders and partnerships with an income no greater than the VAT threshold.
The cash basis may suit smaller businesses, HMRC says, ‘because, at the end of the tax year, you won’t have to pay income tax on money you haven’t received yet’. A system of ‘simplified expenses’ may be used for the use of a home and vehicles for business.
Tax professionals have criticised the new system, which HMRC describes as ‘simpler income tax’, for its complexity. Responding to last month’s Budget Yvette Nunn, president of the Association of Taxation Technicians, welcomed ‘abandonment of the mandatory use of fixed-rate motoring expenses, which could have been a stumbling block for many potential users of the proposed scheme’.
She added: ‘Whilst the rules are likely to remain more complicated than they needed to be it is also good to see that HMRC has listened to advice from bodies like the ATT and scrapped the idea of traders who take an item from stock for personal use having to account for the profit they would have made if they had sold the item. This idea (the Sharkey v Wernher principle in tax-speak) is difficult to explain and apply in a complex business; it had no place in a simple system.’
The legislation is set out in the Finance Bill, at clause 17 and schedule 4. ‘Existing income tax legislation requires the taxable profits of a business to be calculated in accordance with Generally Accepted Accounting Practice,’ HM Treasury said in an explanatory note to the Bill. ‘This means that profits are computed on the accruals basis.’
