Published on 4th April 2012
The Government has opened a consultation document regarding income tax for small business, with proposals for introducing a voluntary simplified ‘cash basis’ for Income Tax and simplified arrangements for certain expenses, following announcements made by George Osborne in the Budget.
The consultation builds on an earlier Office of Tax Simplification (OTS) review published at the end of February that proposed small business with a turnover of up to £30,000 should be eligible to pay tax on cash profits rather than full accounts.
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 for 2012/13 will be eligible, with a possible further extension providing sales reach no more than £150,000 a year.
At present, all businesses have to use the same rules to work out their trading profits and, therefore, the tax they owe on them. This applies whether the business is a self-employed sole trader starting out or a multinational corporation. These rules are based on accounting practice designed for larger businesses, which means a disproportionate administrative burden in calculating tax for the smallest businesses.
It is estimated that more than three and a half million businesses in the UK with a turnover below £77,000 will benefit from the simplifications.
The Government’s consultation is proposing:
The consultation document is open for comments until 22 June and, providing no serious concerns are raised, 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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