The Budget included an announcement that the completion of the tax return for millions of small businesses would be easier next year.

It is planned to increase the turnover threshold for the three line account from £30,000 to the VAT registration limit which will be £68,000 from 1 May 2009. As a result, businesses will not need to complete an analysis of their expenses, but will be permitted to complete a single expenses box, and thus their accounts will form only three lines. The relaxation applies to the personal tax return and to partnership returns, and to both trading income and income from a property business.

It is anticipated that around 3.8 million returns (85%) of trading income would then be within the simpler reporting format, and 98% of property income pages – or 1.4 million. The cost saving to businesses is reckoned to be £54 million per annum.

Rebecca Benneyworth, Editor of AccountingWEB.co.uk discussed the practical effect of this change with a representative from HMRC on Budget Day. She posed the problem that advisers may feel uncomfortable completing only the three line account, and that they might prefer to provide more details to minimise the risk of their clients going under enquiry. HMRC’s view is that the risk assessment process is sufficiently sophisticated for this to be of negligible concern, and encouraged advisers to make use of the new concession on 2010 tax returns.

Businesses will, of course, still have to keep adequate accounting records, with a full break down of the expenses incurred, as this amount of analysis would be required by the new legislation on record keeping, and would also be needed in the event of a compliance check. The new rules, therefore will not affect the requirement to have a proper set of accounts prepared, but will reduce effort when preparing the tax return. For those firms of accountants who don’t use integrated accounts and tax software this could be a real boon next year.