Posted by James Pearson on 25 Jan 2013

Cash Basis Scheme – Accounting Simplification

A major accounting simplification could be on the way for small unincorporated businesses with the government having issued draft legislation – from the 2013/14 tax year onwards the proposals are to allow small self-employed businesses and partnerships to prepare accounts and their tax returns on a cash basis, bringing this into line with the long-established VAT cash accounting scheme.

If approved the rule amendments will bring about a fundamental change to the annual tax return and accounts preparation process for those businesses affected and are likely to offer a significant cash flow boost to small businesses by deferring tax due on income to be taxed only in the year when it is paid.

As would be expected with such a move, it is not anticipated to be without its own raft of specific rules although all the signs are that a reduction in red tape is on the way.

New Cash Basis Scheme

The new cash basis scheme would be optional for unincorporated businesses and partnerships (but not LLPs) if VAT inclusive receipts for the year are less than the VAT threshold (currently £77,000), or twice that (£154,000) for recipients of Universal Credit.

Businesses must leave the cash basis after their receipts exceed twice the amount of the VAT registration threshold.

There is a simplified (mandatory) basis for claiming expenditure on motor vehicles and the use of a home for business purposes (which is not mandatory).  The relief for motor expenses may not be as attractive as claiming all expenses together with capital allowances with an appropriate disallowance for private use – the position will depend on the cars concerned and on the number of business miles travelled (rather than on the proportion the private miles bear to the total miles travelled in the year).

The rules for claiming losses are less beneficial than if normal accounting methods are used (i.e. no “sideways loss relief” is available).

We are well placed to guide small unincorporated businesses that may be affected by the optional rule changes and to help you understand if it will be advantageous to use the new scheme.  The range of specialist services we offer will allow us to ensure the benefits that may be available to you can be achieved.  If you are a self-employed individual or partnership and would like to arrange a free initial consultation to explore further then please get in touch.

Contact Tax Innovations

If you would like any advice regarding the above article or would simply like to discuss other ways in which we could help you or your business, please contact us on 01962 856 990 or


See also…

Retained Cash and Business Property Relief

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