Cash basis

As announced in the 2012 Budget, small businesses, those with receipts not exceeding the VAT registration threshold, will be able to use the cash basis, rather than accounts prepared on an accruals basis, when calculating their taxable profits.

The change will mean firms will not need to adjust for debtors, creditors and stock, and they will generally not have to distinguish between revenue and capital expenditure.

Capital allowances will remain available for expenditure on cars only. Barristers eligible for the allowances will be able to choose between the new cash basis and simplified expenses or the current accruals basis.

The existing cash basis legislation for barristers will be repealed, except for those already using it, for the remainder of their qualifying period.

After consultation on the draft legislation in December 2012, HMRC have made changes to the simpler income tax legislation:

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  Businesses using the cash basis will be able to continue to do so until their business circumstances change so that the cash basis is no longer suitable. The original idea was …