For the 2013/14 tax year, HM Revenue and Customs (HMRC) has introduced a couple of income tax schemes to help make paying and understanding taxes simpler for small businesses. The idea behind the schemes is so sole traders and partnerships can be more confident they paying the right tax – and to make the payment process less complicated.
For an agency that has a history of confuse, don´t convince attitude, this year´s scheme is a stride forward for HMRC. The schemes in question are known as Cash Basis and Simplified Expenses. The schemes do not extend to limited companies or limited liability partnerships. You need to know about your options in order to qualify for the schemes.
What is Cash Basis and who qualifies?
Cash Basis is designed to help sole traders and partnerships calculate their income and expenses more accurate. Many small businesses have been fined in recent years because they mistakenly declared less tax liabilities than they realised. The new rules say to qualify for the scheme your annual income as a self-employed business owner must not exceed the current VAT registration threshold of £79,000. If your business does have a sudden boost of income during the year, you can still stay in the Cash Basis scheme unless your annual income exceeds £158,000
There are two ways you can record income under the scheme – either money physically comes into your business, or using traditional accounting methods and record income and expenses upon invoicing clients. The former option is likely to suit most sole traders and partnerships as it will help cash flow at the end of the tax year.
You can enter the Cash Basis Scheme by ticking the box in the relevant section of your Self Assessment tax return form.
Simplified expenses scheme
The simplified expenses scheme covers how much small businesses can claim for common types of expenses when facilities are used for both business and private, i.e. car and working from home. These types of calculations were previously calculated proportionately which was time consuming and confusing.
In order to qualify for home-related expenses you must work from home for more than 25 hours a month. With regards vehicle use you have the option to select a standard mileage coverage rather than work out your annual mileage. However, if you choose the standard flat rate you must continue to use this option for as long as the vehicle you are claiming against stays in the business. If you choose to enter the Simplified Expenses scheme you must keep a record of your miles recorded and number of hours you worked at home.
Both the Cash Basis scheme and Simplified Expenses are optional so you need to consider whether your small business will benefit from them before selecting the option in your self assessment tax return form. If you need more advice about the schemes or any other tax schemes that will save your small business money contact Taxaccolega, a low fixed fee accountant in London, today on 08000 235 234 or email email@example.com