From the tax year 2013-2014 (ie 6 April 2013 to 5 April 2014), small businesses can take advantage of the two income tax schemes introduced by the HMRC to make tax returns easier. These schemes are known as Cash Basis and Simplified Expenses.
The Cash Basis allows you to align your accounts with when money actually ‘enters’ and ‘leaves’ the business. Note that money includes cash, paid cheques and BACs.
To qualify, your annual income must not exceed the VAT registration threshold (for 2015, the limit is £81,000). This method may suit businesses who usually find themselves paying tax on income not yet received.
The Simplified Expenses scheme allows businesses (NOT limited companies) to calculate how much they can claim in expenses when business and private uses are mixed. Note that it only applies to specific expenses – use of cars for business purposes, use of home for business purposes and use of business premises for private purposes (eg a hotel or bed and breakfast business).
For each of the simplified expenses above, the HMRC provides standard rates that can be used. Obviously, only use this scheme if and only if it is advantageous to do so. The HMRC has very kindly provided this useful checker that you can use as an aid.
Be aware that other expenses must still be applied at actual cost and adjusted accordingly if private use is involved. Regardless of the scheme(s) you choose to use, you still need to keep a record of all relevant paperwork.
Just to reiterate, both schemes are optional so ensure you are fully aware of the merits and demerits before making a decision. Base your decision on the tax (rather than the time) saved.
If you need an accountant’s input, we are right here.
Pingback: Getting Yourself Assessed. | PHOENIX DEBOLA - December 3, 2015