Cash Accounting Schemes for Small Business

There have been substantial last-minute amendments to the cash accounting scheme for small businesses, originally announced in last year’s Budget.

The scheme will give qualifying businesses the option of calculating their taxable profits as cash received less payments made in the year, so ignoring creditors, debtors, changes in stock levels, etc. It takes effect for 2013/14 and, initially, can be used by sole traders and partnerships (but not companies or LLPs) with annual receipts below the VAT registration threshold (currently £79,000).

There is no rule of thumb to say which businesses might, or might not, benefit from cash accounting. Some trades are anyway conducted on a cash basis, with little or no stock and no trade credit for purchases or sales, so it will make very little practical difference. In other cases, HMRC has said that cash accounting will simplify record-keeping, but we are not so sure. For example, if goods are sold or services supplied without immediate payment, the trader will in any case have to keep copy invoices or other records of sales, in order to be able to chase up non-payers.

As part of our annual review of each client’s affairs, we shall be considering whether cash accounting could be beneficial, but we doubt that it will be in very many cases. Alternatively, if you think you would find cash accounting easier or in some way beneficial, we would be glad to discuss the ‘pros and cons’ with you.

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