Cash Basis
Newsletter issue - December 2014
From 6 April 2013 you can use two "simplifications" to make accounting easier for your unincorporated businesses: the cash basis and fixed rate deductions. If your business falls within the size criteria you can use one or both of these simplifications, or neither, the choice is yours.
To start to use the cash basis your business must have annual turnover of less than the VAT registration threshold (currently £81,000). There are slightly different rules if you also claim the Universal Credit benefit (successor to tax credits). You must stop using the cash basis if your turnover reaches double the VAT registration threshold.
You can opt to use the cash basis on a year by year basis and make that decision after the end of the year when you complete your tax return. For example you can opt into the cash basis for 2013/14 then and opt out for 2014/15. There are no specific rules to prevent you from doing this, but adjustments may need to be made to your taxable income when moving out of the cash basis to the accruals basis (normal accounting).
You can't claim capital allowances (CAs) for most assets you buy while using the cash basis, as a full deduction is given for the cost of the asset when it is paid for. But the cost of a car can't be deducted under the cash basis, so CAs for cars used for the business should be claimed, subject to a reduction for any private use of the vehicle.
However, claiming CAs for the car means that fixed rate deductions (45p or 25p per business mile) can't be claimed for that vehicle. It is possible to have some cars subject to fixed rate deductions (for which CAs haven't been claimed) and others that don't qualify for fixed rate deductions (where CAs are claimed) within the same business.
There are a number of confusing rules about capital allowances which have been claimed for assets that you hold when you start to use the cash basis. Our tax experts can talk you through those rules if they apply to your business.
BLOG POSTS
Posted on Mon, 3 Aug 2015
Posted on Mon, 3 Aug 2015
Posted on Wed, 29 Jul 2015
TWITTER
Tweets by @OWSupportLATEST TAX TIPS AND NEWS
It has been revealed that companies across the UK have paid £95.2 billion in Business taxes in the financial year just finished (23/24) - a rise...
Baroness Ros Altmann, a leading campaigner on pensions, has highlighted her fears after figures showing that the number of pensioners liable for tax...
Business owners need to be aware of a batch of new laws that have just taken effect covering employees' rights....
The saga over whether HMRC will axe its tax helpline continues to rumble on, with the latest comments suggesting it may still close after all....
Q: I've started a new job quite recently with a hybrid working arrangement. I work from home 3 or 4 days per week,...
5th Companies House fees are increasing due to the recent introduction of the ECCTA....