Cash basis triggers expenses shake-up

The Chancellor announced in his Budget changes to the expenses regime, both on a general level for smaller businesses and more specifically on a cash-accounting basis.

Here Rebecca Benneyworth examines the finer details of changes to flat rate expenses, as outlined in her Budget report, sponsored by TaxCalc.

Benneyworth explains that the legislation amends ITTOIA 2005, so this does not apply to companies, and there is a further restriction on partnerships in which one or more of the partners is not an individual.

The proposed legislation recognises three distinct types of flat rate deduction, the most important of which is for vehicles.

Register with AccountingWEB for free to read the rest of the article, which includes:

  • Expenditure on vehicles
  • Use of home for business purposes
  • Deduction: per month or part month
  • Premises used as both home and business premises
  • Private use adjustment: per month or part month.

 

Budget 2013 coverage - sponsored by TaxCalc
Download Rebecca Benneyworth's detailed analysis explaining how key meaures will affect ordinary businesses.

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Comments

Use of room in house for business

ver1tate | | Permalink

I have been informed by HMRC that where a room in a house is used solely for business, allowances are calculated on a direct apportionment.

One room in a six room house, one sixth of household expenses may be claimed.

Does this still hold good?

John Stokdyk's picture

Not if you opt to use the cash basis

John Stokdyk | | Permalink

The simplified expenses regime devised to support the cash basis is designed to avoid having to go through complicated apportionments like this. The Budget TIIN on this issue explains that the Finance Bill 2013 includes clauses that will allow all unincorporated businesses to choose, on a simplified flat rate basis, to deduct: 

  • motoring expenses for cars, motorcycles and goods vehicles; 
  • business use of home; and, 
  • private use of business premises. 

From the wording above, it appears that the flat rate deductions are not mandatory. So if you choose to do an apportionment, that should also be acceptable to HMRC. It may be worth checking Rebecca's more detailed Budget report for confirmation - or digging into the Finance Bill clauses if you want definitive confirmation.

memyself-eye's picture

Hmmmm    2 thanks

memyself-eye | | Permalink

If a sole trader working 50 hours a week with an office at home uses the flat rate scheme he/she can claim the magnificent sum of £2.30 per week (£120/year) as a deduction, OR use the apportionment rate of (say) one tenth whereby their yearly gas/electricity costs alone might be £1600 a year...

What bozo at HMRC thinks even a modest office at home only costs £2.30 a week?

Discriminatory

mhtax | | Permalink

This is not even as much as an employee can claim despite not being there for as long as a self employed person may be

mr. mischief's picture

Thank God!    1 thanks

mr. mischief | | Permalink

If this is what happens when George Osborne simplifies the tax system, thank God he wasn't trying to make it more complex!

Not mandatory and open to all

taxwriter | | Permalink

The new fixed rate expenses can be used by any unincorporated business whether or not that business opt to use the cash basis. I understand from the notes to the Finance Bill ( clause 18 and Sch 5) that only partnerships with a corporate partner are excluded from using the fixed rate deductions. Also the fixed rate deductions are clearly optional, the business can use apportionment of actual costs instead.

use of room in house for business

bradburn | | Permalink

You should be careful when claiming a sixth of all expenses. HMRC like you to do this - then when you sell your house a sixth of the gain will be liable to capital gains tax!

investigations joke    1 thanks

The Black Knight | | Permalink

not That there are any

 

But you can imagine...what basis are you using sir? accruals or cash? A: I don't understand?

"Penalties? ""how can that be?" "There are two different ways of getting it right, if you can decide which method to use we can move on," "which is it then?", "don't know " You decide and I'll argue" " no you go first" "gooo on"

after 6 months of no action. we have decided in the public interest of you not giving us brain ache to let you keep the tax as we have our pensions to worry about.

 

Reasonable care: Well I tried to follow the rules but they said they were simple but they were not were they? No

We have enough trouble with clients and HMRC compliance officers with cash and invoice accounting, both of which use different methods for inputs, outputs and different periods.

I asked one officer to clarify which method she was using as it appeared she had used a varied approach. Never heard from her again, end of enquiry.

 

It's going to be fun...and simple really: If you want to pay more tax use the cash basis.

not true

JL | | Permalink

Providing you only claim revenue expenses and not capital, HMRC have no CGT claim when you sell your home. Just remember, only claim the interest element of the mortgage.

monthly not weekly?    1 thanks

rehtg | | Permalink

Are the hours not on a monthly basis, so 50 hours per week (216 hours per month) would be eligible for the £312 per annum (£6 per week) claim?  

Are you sure we can deduct

matthew pennifold | | Permalink

Are you sure we can deduct private use of business premises?

"Businesses using the cash

matthew pennifold | | Permalink

"Businesses using the cash basis will no longer be required to use the flat rate expense allowances for business mileage. Instead they will be able to deduct the business proportion of expenditure on cars, plus the business element of capital allowances on cars."

When were businesses using the cash basis required to use the flat rate expense allowances?

 

Businesses suing the cash basis...

tim hervey | | Permalink

Matthew - you've misunderstood! The original intention (and as in the draft legislation published in December 2012) for the cash basis was that you would have to use the fixed rate expense for cars but under the revised proposals and draft Finance (No 2) Bill 2013, following some policy changes, cars can be dealt with either through capital allowances and actual running costs (both with adjustment for prvate use) or as a fixed rate expense.

Are you sure we can deduct...

tim hervey | | Permalink

Matthew - another misunderstanding!

The private use of business premises (e.g. a guest house) can be dealt with either as an apportionment of the actual expenses or to avoid complicated calcualtions, you can take the total actual expenses and deduct from that total a fixed rate per month based on the number of occupants.

monthly not weekly?...

tim hervey | | Permalink

rehtg - no, the rates are hours per month not per week.

The point is that the fixed rate is more applicable where the you spend some time on, say, the administration of the business. So an accountant working from home dealing with clients' accounts and tax returns etc. is going to spend much more time working at home than, say, a buiilder (who would be working at his customers' premises) but may spend some time each week/month doing his books. It is the buider's record keeping time that may be better and easier to compute using the fixed rate expense. For the accountant, clearly not!

Mis-something

matthew pennifold | | Permalink

tim hervey wrote:

Matthew - another misunderstanding!

The private use of business premises (e.g. a guest house) can be dealt with either as an apportionment of the actual expenses or to avoid complicated calcualtions, you can take the total actual expenses and deduct from that total a fixed rate per month based on the number of occupants.

 

Yes I know that, but read the second comment on this thread.

Thanks Tim

matthew pennifold | | Permalink

tim hervey wrote:

Matthew - you've misunderstood! The original intention (and as in the draft legislation published in December 2012) for the cash basis was that you would have to use the fixed rate expense for cars but under the revised proposals and draft Finance (No 2) Bill 2013, following some policy changes, cars can be dealt with either through capital allowances and actual running costs (both with adjustment for prvate use) or as a fixed rate expense.

 

Yes I know that, but the comment says its no longer required, which would imply it was a requirement; but it was just an intention.

use of room in house for business

ver1tate | | Permalink

This has been considered before using the apportionment method. But the way house prices are going, I do not see much of a profit on sale, and the tax allowances already received will outweigh any tax due.

IS THAT ALL?

david5541 | | Permalink

ARE THERE NOT ANY MORE FLAT RATE EXPENSES RATES? FOR THE IGNORANT( WHO CHOOSE NOT TO ADOPT THE ACCRUALS/UK GAAP BASIS) AND DO IT OFF THEIR OWN BACK RELYING TOTALLY ON HMRC OPINIONS?

sums it up mr mischief the more political interfering in the tax rules in at attempt to "make it simpler" and in fact the whole thing is made more complicated...!!!!!!!