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Final tweaks simplify cash basis law

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21st Mar 2013
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A few minor tweaks have been made to simplify the optional cash accounting regime that will be available to small, unincorporated businesses from 1 April.

An updated TIIN released on Budget day explained that HMRC has taken note of feedback during user testing and introduced tighter wording to block flipping in and out of the regime. Critics of the scheme warned that some businesses might attempt to avoid tax by opting in and out of cash accounting. The revised legislation will now specify that businesses using the cash basis have to continue doing so until their circumstances change.

“You will only be able to change for genuine commercial reasons,” explained Rebecca Benneyworth.

The simplified flat rate vehicle expenses schedule will also no longer be mandatory for those using the cash basis. This change means business can opt to claim capital allowances on expenditure on cars, in an exception to the cash basis no-capital allowances rule.

A few other changes have been made to simplify the legislation wording, including a provision for “just and reasonable” adjustments where an individual takes business goods for their own use. Users of the cash basis will also not be forced to align their accounting periods with the tax year.

“The cash basis will no longer require businesses to use a fiscal year accounting period, so businesses which wish to adopt cash accounting from April 2013 will not have to change accounting date. It is likely that new businesses adopting cash accounting will choose to account to the end of the tax year as this is much simpler for unassisted businesses,” wrote Benneyworth in her TaxCalc-sponsored Budget 2013 guide.

Yvette Nunn, president of the ATT commented that the original draft legislation included features that made cash accounting look very unattractive.

“The changes… go some way to salvaging the concept,” she said. “We welcome in particular the 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.

“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.”
 

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Replies (3)

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By thomas34
21st Mar 2013 15:02

Yep

All looks straightforward to me. Those opting to use the cash basis will not have to use the simplified flat rate expenses for their cars under "Simpler income tax for the simplest small businesses". A simple capital allowance computation will be required thereby making it not quite a cash basis - but nearly. You couldn't make this up, could you? In any case 10 days is plenty enough time for me to digest all of this and advise my clients of the changes.

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By Wiganer Elaine
22nd Mar 2013 11:23

Universal Credits

I went on a tax course last week and was told that any self- employed person who claimed Universal Credits would have to go on the simplified cash scheme. Is this still the case?

If so, what about a partnership whereby only 1 partner needs to claim Universal Credits - is the partnership business forced to use simplified cash accounting?

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By thomas34
22nd Mar 2013 16:51

Universal Credits

I might be wrong Elaine but I think the cash basis for UC claimants is not the same as the cash basis for income tax. I believe it's just an "easy" way (I've avoided the word "simple") to report your earnings each month in a very timely fashion in order not to breach the stringent deadlines. There will clearly be some correlation between 12 of these claims and the annual taxable profits but there will be differences if only because vehicle capital allowances are now counted as allowable cash expenses. So, to answer your question, UC claimants don't have to opt for "simplified cash accounting". If I've got this wrong somebody please tell me because I'm losing the will to live.

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