Simpler Tax for Small Businesses

The Government has announced the introduction of a couple of simpler income tax measures for small businesses. From the 2013/14 tax year self employed individuals or partnerships
carrying on the smallest trading businesses will be able to choose to be taxed on the basis of receipts less payments. All unincorporated businesses will be able to use simpler rules for some business expenses.

The two schemes – Cash Basis and Simplified Expenses – are designed to make it easier for small businesses to deal with their income tax.

Thus, from the 2013-14 tax year onwards, small unincorporated businesses with an income not exceeding the VAT registration threshold (currently £79,000 per annum) will be able to select whether to be taxed using the current rules or on a Cash Basis – that is to say on the basis of the money that actually comes in and out of their business. This will avoid the need to make year-end adjustments, required under current rules.

In addition, any other unincorporated businesses can elect to use fixed rates (Simplified Expenses) to work out what they can claim for some common types of business expenses where there is a mix of business and private use.

These simplified expenses are all optional. They are:

  • fixed allowances for business mileage (rather than deductions for actual expenditure on purchasing, maintaining and running a motor vehicle or motor cycle, apportioned between business and private use);
  • a flat rate to calculate expenses relating to business use of home (rather than deductions for actual amounts, apportioned between business and private use)
  • a 3 tier banded rate to calculate the adjustment for private use of business premises (rather than deductions for actual amounts, apportioned between business and private use.

Until now, businesses have had to work out the actual amounts that related to business use.

Cash Basis and the Simplified Expenses are optional, and businesses can choose any or all of the schemes which best suit their needs.

Further guidance from HMRC can be found here. If you are still in need of additional information, please contact us today, or read our Tax Investigations service pages.


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