Small businesses are being encouraged to consider using an HM Revenue & Customs’ (HMRC) scheme that allows them to be taxed on money flowing into and out of their business, rather than using full accounting rules.
With a new tax year about to start on 6 April, HMRC has highlighted the benefits of the cash basis scheme, which can be used by sole traders and other unincorporated businesses with an annual income of less than £79,000.
The scheme involves a business simply working out the cash received in a tax year, less any money spent on allowable business expenses.
This means small businesses do not need to spend time at the end of the tax year making complex accounting adjustments and other calculations more suited to larger businesses.
Unincorporated businesses can also choose to use simplified expenses, which involve using flat rates for certain costs instead of making complex calculations of actual business expenses. It can be used for:
- business costs for vehicles;
- business use of your home; and
- private use of a business premises as a home.
HMRC’s Carol Lunney said on 17 February: “The cash basis and simplified expenses schemes can help save small businesses time and money. With a new tax year on the horizon, now is the time to start thinking about them.”
At Milsted Langdon, our tax team can advise you on the most appropriate options for your business, particularly with a new tax year now fast approaching. For further information, please contact us.