Tax for SME's and Self Employed gets easier

*Please note the information in this article may be out of date

From 2013/14 small businesses can choose to keep "cash basis" accounting rather than invoiced based accounts.

Wed, 10 Apr 2013

Keeping your accountants on a "cash basis" rather than on an invoice issued basis could greatly simplify Self Assessment returns for many small businesses. It can also help with cash flow problems.

Under a "cash basis" system you record money when it actually comes in and goes out of your business. When using the traditional accruals based system, you record income and expenses when you invoice your customers or receive a bill. The main advantage to smaller businesses is that, at the end of the tax year, you won’t have to pay Income Tax on money you have not received.

This tax year, 2013/14, HMRC are allowing qualifying SME's to choose under which system they wish to keep their accounts, and base their income tax returns on. The option is not open to Limited Company's or businesses with an income above £79,000 per year. There are certain SME's which cannot use the "cash basis" system, such as waste disposal businesses and certain farming businesses.

For full details on what the implications of "cash basis" accounting are, and which businesses may or may not qualify, see here.