HMRC have been urged by the Chartered Institute of Taxation to go back to the drawing board in relation to their cash accounting proposals for small businesses.
According to the Chartered Institute of Taxation, HMRC’s cash accounting proposals are flawed, as a result of “unpalatable conditions” including removing the opportunity to claim for certain business expenses – with the organisation supporting a cash basis for income tax closer to the version previously suggested by the Office for Tax Simplification.
Chairman of the Chartered Institute of Taxation’s Owner Managed Business Sub-Committee, Andrew Gotch, said: “HMRC’s version of the cash basis is not really a cash basis at all, but a means of arriving at an estimate of a person’s income from a business by a less formal means than that of preparing GAAP2 accounts to produce a profit or loss. That seems wrong.
“A system of cash accounting, as envisaged by the OTS, enacted for use by the smallest and simplest businesses, would reduce burdens and compliance costs for those businesses.
“But it should be truly simple in a way that business people can understand – which HMRC’s proposals are not.”
Mr Gotch went on to say: “Preventing loss-making businesses from claiming sideways loss relief is not equitable and is based on a false premise.
“The proposal for improved and wider flat-rate allowances has been linked to the cash basis with uneconomic rates of allowances. This adds complexity and fails to achieve what could otherwise have been a welcome simplification: it will increase the need for advice.
“HMRC’s proposals to abolish some existing allowances for agricultural and other industries would be a significant burden. It is time for HMRC to embrace the true meaning of simplification and give the smallest businesses relief from tax administrative burdens.”
As an accountant in Bristol, Elaine Durrant specialises in offering tax advice, guidance and support to businesses and individuals.