Cash based Accounts

Cash based Accounts

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Cash based accounts kick in from 2013/14 as I understand it.  This implies to me that it has an effect on 2012/13 tax return in that income arising in that year but not received until after 6th April 2013 could be treated as income in 2013/14 rather than 2012/13.  If my assumption is correct, is this dealt with by just omitting the income from the 2012/13 return?  There does not appear to be any provision on the 2012/13 SA return to indicate that you will be using the cash based accounting scheme going forward.

Also as at the time of writing there's no information on HMRC's website, which doesn't help.

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By johngroganjga
06th May 2013 12:36

I have not studied the transitional arrangements but I'm sure it must be the opposite way round from what you are suggesting.  To deduct debtors from 2012/2013 profits in anticipation of them being taxed as cash flows in 2013/2014 would be to depart from the accruals basis that is required for 2012/2013.  So I am sure that all 2012/2013 figures must be computed as they always have been and the adjustments to avoid taxing the same income twice must fall into 2013/2014. 

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By andy.partridge
06th May 2013 14:14

Agree with John

While tax is often not logical it would need to be twisted indeed to agree with your assumption.

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By thomas34
06th May 2013 17:16

Agree with both

2012/2013 profits will be calculated using the proper accruals-based method of accounting. If a taxpayer opts to use the cash basis for 2013/2014 there will be an adjustment to ensure that each item of income and expenditure is brought into account only once. Paragraph.  This effectively means that 2013/2014 will be a transitional year. If you intend to use this hair-brained scheme you'll need to read up very carefully in particular on the optional treatment of motor running expenses, the rules for which were only brought in on budget day.  Paragraph.  Of more importance than the decision as to which system to adopt is that of covering one's back with clients by tracking profits under each method.  Paragraph.  There will be some large variations particularly in year one and you'll need to justify to the odd clued-up client why you've allowed him to pay more tax possibly in that year and be aware of the disadvantages of the new scheme.

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By johngroganjga
06th May 2013 18:41

This goes beyond answering the question, but hare-brained is the word.  How anyone ever thought that making this system available would simplify anything and reduce compliance costs is beyond me.  Also it vastly increases the opportunities for clients to perpetrate teeming and lading type frauds on HMRC.  Easy.  In the last couple of weeks in the year just post drawings to purchase ledger balances, then reverse the entries after the year end.  Also hide all cheques that come in from debtors for a couple of weeks then bank them all after the year end.

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By Vince54
06th May 2013 19:48

Cash based accounts

Thanks to you all for your prompt replies.

I'm not an accountant, and have very simple tax affairs not warranting the expense of an accountant (sorry guys!).  I seem to have fallen for HMRC's 'simpler' propaganda and will need to read up on the guidance once it has been issued.

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By Boycie
06th May 2013 20:01

Any offers ?

 

Your views are of course dead right - but in the same ballpark is the scope  for legitimate manipulation by, for example, not sending bills out until later than normal, or paying bills earlier than normal ; or indeed just buying stocks of materials earlier than normal.  I understand there are anti-avoidance measures to prevent excessive abuse but where the line is drawn between normal and abnormal manipulation is impossible to determine in fact.  This makes for rank bad law.   The problem for accountants is that we are exposed to negligence claims for not advising clients not just about the cash basis, but about the scope for such manipulation.    An essential case for amending Engagement Letters - surely it is possible to produce  suitable wording ( it should only take two or three sentences) to cover  against such  claims, which I may have missed - anyone on here like to offer the appropriate words  ( or indeed provide a link to official or indeed unofficial recommended wording) ?.  

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Replying to Bobbo:
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By thomas34
07th May 2013 08:06

Boycie

Boycie wrote:

 

Your views are of course dead right - but in the same ballpark is the scope  for legitimate manipulation by, for example, not sending bills out until later than normal, or paying bills earlier than normal ; or indeed just buying stocks of materials earlier than normal.  I understand there are anti-avoidance measures to prevent excessive abuse but where the line is drawn between normal and abnormal manipulation is impossible to determine in fact.  This makes for rank bad law.   The problem for accountants is that we are exposed to negligence claims for not advising clients not just about the cash basis, but about the scope for such manipulation.    An essential case for amending Engagement Letters - surely it is possible to produce  suitable wording ( it should only take two or three sentences) to cover  against such  claims, which I may have missed - anyone on here like to offer the appropriate words  ( or indeed provide a link to official or indeed unofficial recommended wording) ?.  

Yes, agreed and I've been saying this for months.  Paragraph.  I did devise one letter for all clients to sign well in advance of 6 April 2013 basically agreeing that we would stick with the accruals basis. This letter became redundant overnight on budget day when it was announced that it was possible to apply cash based accounting whilst not using the motor mileage rate - in other words it was a cash based system with one exception.  Paragraph.  I believe that a case can be made to clients for ignoring the cash based method because of the loss of capital allowance planning around the personal allowance. The same argument can be used for the compulsory crystallisation of overlap relief (where applicable). Paragraph.  I wonder how many accountants have advised all their clients to keep a mileage log from 6 April 2013? I produced a simple sentence for clients as follows: "I agree to the proposals not to use the new optional cash based method of accounting until written notification otherwise". Once the dust has settled on RTI I believe this subject will come more and more to the fore. Paragraph.  I do know that any sensible accountant will need to keep two sets of profit figures each year in order to track the difference between the two methods purely to cover his own back.
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By User deleted
06th May 2013 21:23

Chapter 17 (adjustment income)

There are transitional rules provided in the Finance Bill that address situations of this type. Specifically s.227A is being inserted in to the ITTOIA 2005 to confirm that Chapter 17, Part 2 will apply to cash accounting and as a consequence no receipt will be taxed twice.

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