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Simplified accounting for sole traders and partnerships

From April 2013, the Government is proposing to introduce simplified accounting and expenses options for small, non-incorporated businesses. If you fall into this category, read on to find out what the changes mean to you and how you can have your say on the proposals.

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From April 2013, the Government is proposing to introduce simplified accounting and expenses options for small, non-incorporated businesses. If you fall into this category, read on to find out what the changes mean to you and how you can have your say on the proposals. Following announcements on tax simplification made in March's Budget, the Government is consulting on the introduction of a 'cash basis' for tax calculations and simplified expenses for self-employed sole traders and partnerships. This means that these businesses would only be eligible to pay tax on cash profits rather than full accounts. Whereas, currently, small businesses and sole traders have the same rules for working out the amount of tax owed as multinational corporations. When first announced, the plan was to offer this to businesses with a turnover of up to £30,000, but the Government is considering extending this to match the VAT registration threshold, meaning self-employed sole traders or those in a partnership with a turnover of less than £77,000 (2012/13) will be eligible, with a possible further extension providing sales reach no more than £150,000 a year. What do the proposals mean? Eligible small businesses would be taxed on a 'cash basis' rather than lengthy calculations designed for bigger businesses. Tax would also only be paid when cash is received and there would be no need to keep complicated records (i.e. stock, debtors, creditors) over and above those needed to run a business effectively. To use the cash basis, you will have to: Record all money received in connection with your business and amounts paid to cover allowable expenses Record any business miles driven by car or motorcycle and be in a position to assess roughly how much time, if any, you spend working at home for your business Select cash basis on your tax return form. The cash basis will be entirely voluntary, so if you want to use the normal rules, you will be able to do so. How can you have your say? The Government wants to hear the views of small businesses on the cash basis and the consultation document is open for comments until 22 June. We're submitting a response on behalf of our members. If you'd like us to include your comments, please email alex.jackman@fpb.org. You can also find more information by downloading this guide from HMRC. Following the consultation, the cash accounting basis is expected to be implemented for firms trading up to the £77,000 VAT threshold due in April 2013.

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