HM Revenue and Customs (HMRC) is encouraging more small businesses to use two alternative schemes that allows them to be taxed simply on money that flows in and out of their business, rather than using full accounting rules.
The cash basis scheme can be used by sole traders and other unincorporated businesses that have an annual income of less than £79,000. It promises to simplify their accounting processes and save them time and money.
The scheme allows a business owner to provide simple accounts based on how much cash has come in over the tax year, less any money spent on allowable business expenses. It means that small businesses don't need to spend time at the end of the tax year making complex accounting adjustments designed for larger businesses.
According to HMRC, many small firms are likely to benefit from the simplicity of the cash basis, particularly those providing services, such as hairdressers, window cleaners, taxi drivers, gardeners, painters and decorators, plumbers and electricians.
In addition, unincorporated businesses can choose to use simplified expenses. This involves using flat rates, and it can be used for:
- the business costs of vehicles;
- the cost of using your home as a business;
- the private use of a business premises as a home.
HMRC's Carol Lunney said: "The cash basis and simplified expenses schemes can help save small businesses time and money. With a new tax year on the horizon, now is the time to start thinking about them."