Cash Accounting made more accessible

Cash basis accounting helps sole traders and other unincorporated businesses benefit from a simpler way of managing their financial affairs. A new policy paper published following the Budget has confirmed that the turnover limit for the scheme will increase from £83,000 to £150,000 from 6 April 2017. The increased limit has been put in place to allow more small businesses to benefit from the scheme. It allows qualifying businesses to use the cash basis when recording income and expenditure. The rules on capital and revenue expenditure within the cash basis will also be simplified to make it easier for businesses to work out whether expenditure is deductible. An estimated 135,000 additional small businesses will be eligible to choose the cash basis for their business and HMRC has estimated that over half of these businesses will do so. The scheme is most suitable for straight forward businesses especially those that provide services. Once a business has entered the cash basis scheme they can continue to report in this way until their income reaches double the threshold i.e. £300,000 from next month. The scheme is not open to limited companies and limited liability partnerships and there is a further list of businesses that can’t use the scheme such as Lloyds underwriters, businesses that have claimed research and development allowance and managed service companies. It seems that the government are very keen to make it easier for the self-employed to report their results to them, which is not surprising given the increase in National Insurance! That said, it's clear that this move has been made to make it far easier for everyone to migrate to the Making Tax Digital regime, which comes into play from April 2018 for self-employed people with turnover in excess of £85,000.