July 21, 2014 Businesses that turnover under the current VAT threshold (£81,000 per annum) are able to use the simplified cash basis to prepare their accounts for the tax year 2013-14. The scheme is open to sole traders and partnerships and could simplify the accounting process for millions of small firms across the UK. Recording Income Under the Cash Basis scheme you simply record the income when you are paid. So if your customer is invoiced during your financial year but does not pay until after your business year-end you will not include the income in your accounts for that year. This applies no matter how your customer pays; cash, cheque, card or payment in kind. You can choose how to record when the money is received. For example, you may record the income on the date that the cash appears in your bank account. If you are paid by cheque you may decide to record the income on the date you receive a cheque from your customer regardless of when it is banked or clears your account. The only restriction is that you must apply the same method consistently every tax year. Recording Expenses The cash basis will not impact the expenses that you can claim for your business, only when you can claim them. As with income, you will only be able to claim expenses on the date that they are paid. You are also still able to claim capital allowances, although you may need to apply some transition rules. How to get started? You do not have to register with HMRC when you start using the cash basis, but you may have to make adjustments in your accounts when you first switch from the traditional accruals accounting basis. You must leave the scheme if your turnover exceeds £162,000 per annum (i.e. twice the VAT registration threshold). While the scheme has simplified the record keeping processes for small businesses, the transition rules may complicate your situation or mean that you worse off under the scheme and you may be best sticking to the traditional methods. We can provide clear advice to help you make the right choices for your business, so please don’t hesitate to get in touch.