Under the cash basis, if your business incurs a loss, this can only be carried forward and set against profits of the same business in future years. This is a restriction on the normal rules, which will allow the loss to be carried back or set off ‘sideways’ against other income. Special calculations are needed on entering or leaving the cash basis. This is to make sure that income is taxed and expenses are relieved ‘once and once only’.
The cash basis rules for the self-employed and partnerships can be quite complex. If your business is in Sidcup, Bromley, Kent, London and nationwide we can help and advice in the most appropriate option for your business. Please do contact us at Adiva Accountants in Sidcup, if you would like further help or advice.
In terms of deductions allowable, apart from being incurred wholly and exclusively for the purposes of the trade. The expenses must have been actually paid in the accounting period.
No deductions are generally allowed for items which are of a capital nature such as the purchase of property, when calculating the taxable profits. However, under the cash basis the costs of most plant and machinery are deductible. One key exclusion is the purchase of cars.
Relief for interest payments
A maximum of £500 can be claimed if you have a business loan or overdraft only interest payment. If you wish to claim more interest as a deduction, then this could be treated as a change of circumstances. As a result, you will have to prepare your accounts on the accruals basis.
We will cover below the unincorporated businesses. We will focus at the optional rules which allow small unincorporated businesses to use the cash basis rather than the accruals basis to calculate their profits for tax purposes. If your business is in Sidcup, Bromley, Kent, London or nationwide we at Adiva Accountants in Sidcup can help by looking at whether this is an appropriate option for your business.
Accruals basis and cash basis
When using the accruals basis, the credit sales are included in the accounts income. This is regardless if the customer has paid or not for the goods or services by the end of the accounting period. But, when using the cash basis, the business income includes only the cash receipts received during the accounting period. So, under the cash basis credit sales are accounted for and taxed not when raised, but in the year in which they are paid for by the customer.
Eligibility
The main entry criteria to use the cash basis are that your business is unincorporated (sole trader or a partnership). And that your receipts in the accounting period are less than the VAT registration threshold in force at the end of the relevant tax year. The current VAT registration threshold is £83,000 (from 1 April 2016, previously £82,000). The threshold is set at twice the VAT registration threshold for those individuals who intend to make a Universal Credit claim.
Limited Liability Partnerships, Lloyd’s underwriters and those eligible individuals who wish to continue to claim averaging of profits, like farmers are excluded from using the cash basis.
Unless the business grows too large, or there is another ‘change of circumstances’ the individual once elected to use the scheme will generally have to remain in the scheme.
Important tax points
Cash receipts
Cash receipts include all cash receipts that the business receives during the accounting period. Apart from the trading income, this will also include the proceeds from the sale of any plant and machinery. Any amount still unpaid from the customers by the accounting year end, will not be taxable until it is actually received by the business.
If your business is in Sidcup, Bromley, Kent, London or nationwide we can help and advice on the best option for your business. Please do contact us at Adiva Accountants in Sidcup if you would like further help or advice.
We will cover below the unincorporated businesses. We will focus at the optional rules which allow small unincorporated businesses to use the cash basis rather than the accruals basis to calculate their profits for tax purposes. If your business is in Sidcup, Bromley, Kent, London or nationwide we at Adiva Accountants in Sidcup can help by looking at whether this is an appropriate option for your business.nAccruals basis and cash basis.
When using the accruals basis, the credit sales are included in the accounts income. This is regardless if the customer has paid or not for the goods or services by the end of the accounting period. But, when using the cash basis, the business income includes only the cash receipts received during the accounting period. So, under the cash basis credit sales are accounted for and taxed not when raised, but in the year in which they are paid for by the customer.
Eligibility
The main entry criteria to use the cash basis are that your business is unincorporated (sole trader or a partnership). And that your receipts in the accounting period are less than the VAT registration threshold in force at the end of the relevant tax year. The current VAT registration threshold is £83,000 (from 1 April 2016, previously £82,000). The threshold is set at twice the VAT registration threshold for those individuals who intend to make a Universal Credit claim.
Limited Liability Partnerships, Lloyd’s underwriters and those eligible individuals who wish to continue to claim averaging of profits, like farmers are excluded from using the cash basis.nUnless the business grows too large, or there is another ‘change of circumstances’ the individual once elected to use the scheme will generally have to remain in the scheme.
- Important tax points.
Cash receipts
Cash receipts include all cash receipts that the business receives during the accounting period. Apart from the trading income, this will also include the proceeds from the sale of any plant and machinery. Any amount still unpaid from the customers by the accounting year end, will not be taxable until it is actually received by the business.
If your business is in Sidcup, Bromley, Kent, London or nationwide we can help and advice on the best option for your business. Please do contact us at Adiva Accountants in Sidcup if you would like further help or advice.
Any advice and plan for property investment must take into account your circumstances and aspirations. Seeking professional advice can help to sort out potential problems and structure the investment correctly.
If you live in Croydon, Kent and London we would be happy to discuss with you, buy to let or other investments. Please contact us at Adiva Accountants in Croydon for more detailed advice.
The cash basis rules for the self-employed and partnerships can be quite complex. If your business is in Sidcup, Bromley, Kent, London and nationwide we can help and advice in the most appropriate option for your business. Please do contact us at Adiva Accountants in Sidcup, if you would like further help or advice.nn