03 Mar Changed to cash basis accounting- can you take advantage?
Changed to cash basis accounting- can you take advantage?
When you run a small unincorporated business, cash basis accounting may suit you better than traditional accounting where you record income and expenses by the date you invoiced or were billed.
Under cash accounting principles you only need to declare money when it comes in and out of the business. At the end of the tax year, will not pay Income Tax on money you didn’t receive in your accounting period.
Since 2013, sole traders and partnerships with an annual turnover of up to the VAT registration limit (£83,000 since April 2016) were allowed to calculate their taxable profits using the cash basis. In the cash accounting, you account for income when they are paid by a customer and expenses when they are paid out.
Limit Increase – For accounting periods which ends in 2017/2018 or later years the cash basis turnover limit is increased to £150,000 and you can keep using it until your turnover exceeds £300,000.
So, if you have more than one business, you must use cash basis for all your businesses.
Tip. You don’t have to ask HMRC’s permission to use cash basis accounting, but you do need to indicate on your tax return.