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Simpler income tax system for small businesses (cash accounting)

Simpler income tax system for small businesses ...

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In reference to this document:

And this ...

Chapter 3: Simplified expenses


1. The draft legislation includes the necessary legislative framework for three types of simplified expenses: expenditure on vehicles, use of home for business purposes, and premises used for both home and for business purposes.

2. The key principles underlying the simplified expenses are that:

• allowable expenditure may be calculated using a simple flat rate allowance, rather than a potentially complex apportionment of actual expenditure

they are entirely optional outside the cash basis

• within the cash basis simplified motor expenses must be used, but the other two simplified expenses are optional.

I take this to read that any (unincorporated?) business that doesn’t elect to use these new simpler rules (cash accounting) could still elect to use the calculations for use of home for business purposes, and premises used for both home and for business purposes.

So use of home as office could be:

Number of hours worked at home per month x applicable amount

Where the applicable amounts is:

25-50 hours per month £10

51-100 hours per month £18

101 hours or more per month £26

Or of course the claim for allowable portion of actual expenses as before.

Is that correct?

Is it just unincorporated businesses?

Replies (3)

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15th Mar 2013 14:16

I think the guidance is wrong

Draft ITTOIA 2005, s 94J states: "The amount of the deduction allowable for the period is the sum of the applicable amounts for each month, or part of a month, falling within the period."

I don't read that as "hours x applicable rate", I read it as the applicable rate is the deduction for each month. Either the guidance is wrong or the draft legislation is.

Only unincorporated businesses can claim it but there are some exceptions. For example, partnerships with corporate partners are prohibited.

Draft s 94D states: "The provisions of this Chapter do not apply in calculating the profits of a trade carried on by a firm for a period if one or more of the persons who have been partners in the firm at any time during the period was not an individual at that time."

Thanks (1)
By Elaine Clark
15th Mar 2013 14:25

I think the guidance is wrong - thank goodness

Thank you


I did think the rates were rather generous :-)


But thought I must have been reading it wrong. Glad to know that the guidance document is wrong although of course this is always worrying.


Thanks (0)
25th Apr 2013 18:45

Does this system mean there is no basis period calculation?

I was reading the link and wondered if a client wished to use this cash accounting method now what happens to the overlap profits they have from when they started as a sole trader?  I guess there is no basis period calculation anymore either? Thanks

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