The government have recently announced that the existing cash basis arrangement for barristers will be withdrawn, except for barristers using the current rules for the 2012/13 tax year and those who will be eligible under new regulations which have recently been unveiled for all businesses.
The announcement is part of the government’s plans to introduce a simpler income tax process for small businesses for the 2013 / 2014 tax year; which will see all self employed individuals or partnerships carrying on the smallest trading businesses have the option to be taxed on the basis of receipts less payments.
Under the changes, the government hope that it will be easier for small businesses to calculate their taxable income, whilst also providing businesses with more certainty over their tax affairs.
As part of the changes being introduced by the government, small businesses will have the option to elect to use a “cash basis”, which will see them taxed on their receipts less payments of allowable expenses, rather than being asked to spend their time doing accounting adjustments, which can cause issues and are time consuming.
However, the proposed changes will not be appropriate for all small businesses; and to determine whether a business is eligible or not to participate under the “cash basis” system, they must meet the following criteria.
Firstly, a business can enter, if their receipts for the year are up to the amount of the VAT registration threshold, which is currently £77,000; whilst Universal Credit recipients are eligible if their receipts for the year are twice the amount of the VAT registration threshold – which is currently £154,000.
In addition all businesses that opt in to use the “cash basis” must ensure that they stop using the process the year after their receipts for a year exceed twice the amount of the VAT threshold (currently £154,000), unless their receipts fall back below the entry limits.
Anyone wishing to know more about the introduction of the cash basis, or who would like to discuss their tax affairs further, are welcome to speak to myself or a member of the Milsted Langdon team.
As an accountant; David Jacobs offers a range of accounting, audit and taxation advice to the legal and medical professions.