Simpler Income Tax: cash basis

1. Overview

‘Cash basis’ is a way of working out your income and expenses for yourSelf Assessment tax return.

You can use cash basis if you:

  • are a small self-employed business eg sole traders and partnerships
  • have an income of £81,000 or less a year (this is the threshold when you have to register for VAT)

You can start using cash basis from the 2013 to 2014 tax year.

Limited companies and limited liability partnerships can’t use cash basis.


2. How cash basis works

You can choose to record your business income and expenses over the tax year in 1 of the following ways:

  • using cash basis – record money when it actually comes in and goes out of your business (all money counts – cash, card payments, cheque and any other method)
  • using traditional accounting (accruals basis) – record income and expenses when you invoice your customers or receive a bill

Cash basis might suit smaller businesses because, at the end of the tax year, you won’t have to pay Income Tax on money you didn’t receive in your accounting period.

What you have to do

You need to keep records of income and expenses in a different way from April 2013.

If you choose cash basis or you’re already using it, just tick the cash basis box on the form when you send your 2013 to 2014 Self Assessment return.

Talk to a tax professional (eg an accountant) or legal adviser if you need help.


Author: MixoBiz

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