New Cash Basis of Accounting
In the March 2012 Budget, the Chancellor announced that he was considering allowing small businesses to compute their profits using a ‘cash basis’ if they wanted to. This is considered simpler than the accruals basis that is currently required, and also means recognizing profits later – and so delaying the payment of tax – if a business gives credit to its customers.
This will be introduced on a voluntary basis from April 2013 for those businesses which trade below the VAT registration threshold (currently turnover of £77,000). There is a ‘cash accounting scheme’ for VAT-registered traders with turnover of up to £1.6m, but this will be a completely different set of rules.
Although it does potentially simplify accounting, changing to and getting used to a new system may present its own difficulties. Unincorporated businesses will also be able to use flat rates to calculate some types of expenses rather than having to calculate actual amounts – or, presumably, keep records of that type of cost.
There is a strict timetable for the production of annual accounts and the associated returns generated from these accounts. If your accounts are not delivered to HMRC (and Companies House for incorporated companies) within this timetable, automatic penalties are issued. There is also a significant risk of your affairs being investigated by HMRC, which could be detrimental to your business.
We will compile your annual accounts from the information you provide, and work closely with you to make sure that all the costs that you can claim against your business are properly accounted for, and that all tax-deductible expenses have been included.
We will then review your accounts with you in detail to ensure that it is accurate, and to be certain that you fully understand how these accounts were calculated, so that you can better manage your business affairs.