Cash accounting for small businesses. By Nichola Ross Martin

All businesses have to prepare their accounts according to Generally Accepted Accounting Practice (GAAP) and since 2005 businesses can voluntarily follow International Financial Reporting Standards (IFRS).

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Comments

Capital allowances

Anonymous | | Permalink

Why not use on the face of the accounts, the amount of capital allowances you are going to claim. This makes more sense to the client as the taxable amount now bears more relationship to the actual accounts.

Poll open

AnonymousUser | | Permalink

OK I've put a poll up on taxation.co.uk if people want to vote, and Taxation will cover the story too, giving the credit to Nichola and Aweb. Seems like a good idea to me, maybe we can work together to get the ball rolling?

Mike Truman
Editor, Taxation magazine

dialm4accounts's picture

Where can I join?

dialm4accounts | | Permalink

If there's going to be a campaign to put the idea of cash accounting for small unincorporated businesses to Gordon Brown, count me in!

Where can I join please!

M

The CASE for cash

Anonymous | | Permalink

Emily Coltman contributed by email that she would be ready join a campaign to put the suggestion of cash accounting to HMRC and “writers of accounting standards”.

She has even though of a name for the campaign “CASE: Cash Accounting for Small Enterprises – There is a CASE for cash”.

I look forward to the results of the survey - well done Mike.

Nichola Ross Martin
Editor, AccountingWEB

Why not CA's?

Peter Cane | | Permalink

Why shouldn't there be capital allowances with cash accounting?

Even with cash accounting, you would still have the same considerations regarding revenue and capital.

Cash Accounting - yes please

pressco | | Permalink

I agree with the principle of cash accounting. I use it for the majority of my "smaller" clients and even for some VAT registered ones!

Provided an analysis of the bank account is made I can see no problem with it. For CIS voucher cases there are no purchases other than some fuel and tools etc so I cannot see any need for full accounts.

In the relatively small number of clents selected for investigation HMRC have never queried the absence of a BS. They have performed similar checks of the bank account(s) and provided nothing undue is apparent no further comments have ever been made.

To sum up then I will fully support any proposal for cash accounting!

freelance32's picture

Cash accounts for small business

freelance32 | | Permalink

I use cash accounting for small clients too - but with an adj for accruals and prepayments if of a reasonale size. Most have little or no debtors or creditors, and WIP is hardly relevant in many cases, with the client not adequately reporting the progress of their contracts anyway - so they would be guessing the figures more often than not.

I am more concerned that clients have claimed for everything they can - as some can be over-zealous, others are over cautious, and that turnover is reflected properly, and does add up to a sensible remuneration level - its no good keeping the tax low, and find the client is living on £300 a month!!! So sometimes you do have to delve a little further than the bank stats to get a true picture.

But its all about reporting and being fair - make it simple, and we should all feel the benefit of getting tax paid as it should be, and having quality tax planning, not just tax reduction in mind.

Cash Accounting

AnonymousUser | | Permalink

One item at the bottom of the atricle:

"They may need some assistance to claim capital allowances"

Presumably if small entities could cash account for tax, there would be no capital allowances.

Actual cash inflow / outflow would be everything, and there would be no adjustments to that.

capital

AnonymousUser | | Permalink

It seems to me though, that cash accounting as a simplification needs to be just pure cash accounting.

Once one introduces all sorts of other rules, of which one can be cash accounting for revenue items, accruals accounting for capital items, then it gradually moves away from the original purpose, and becomes something completely different, and potentially somewhat complex. One then needs a whole set of rules dealing with the capital / revenue split.

dialm4accounts's picture

Adjustments won't vanish

dialm4accounts | | Permalink

Even if cash accounting were brought in, I would imagine there would still be some adjustments for tax - for example entertaining and money withdrawn by the proprietor would still be disallowed.

Capital allowances would be one of those adjustments.

As Holly suggests, they could be done on the face of the P&L rather than on a separate computation - i.e. just not put entertaining on a P&L same as we don't put drawings on a P&L.

M

Cash accounting

dan06 | | Permalink

Many thanks for that Mike. I'm sure the poll will get a big response!

Dan Martin
Business Editor
AccountingWEB

Perhaps not.

NeilW | | Permalink

In conclusion, I think that we have found the solution to Gordon Brown's great quandary on "tax motivated incorporations", a bit late in the day admittedly!

I don't think you have. The adjustments you need to make to a small businesses accounts for accruals accounting are actually trivial and can be automated - just as soon as you free your mind from the tyranny of double entry ledgers.

The solution to tax motivated incorporations is to correct the tax differential. That is the only solution to it.

NeilW

cash

oldersimon | | Permalink

I like to think of this as the Campaign for Real Accounting (as in the real world)...

richard.murphy's picture

Further comment

richard.murphy | | Permalink
richard.murphy's picture

Cash is misguided accounting

richard.murphy | | Permalink

I think this call is fascinating, and let me be candid. I also think it somewhat misguided. To explain in greater detail why this is so takes more space than is allowed here. Please follow the link to my place where I explain why this is so. http://www.taxresearch.org.uk/Blog/2006/10/30/the-case-against-cash-accounting/

Cash Management

sam105 | | Permalink

I need some excel reports and modules to help in Cash Management / thanks