Cash basis vs accruals basis

michbright

I am self-employed and am currently getting everything together to complete my SA tax return online.

I know there is a new system that has now been introduced for 2013-2014 and I would just like to know what the advantages (if any) of using the cash basis vs accruals basis would be.

Also, if I were to decide to switch to the cash basis, I have another dilemma on my hands. I invoice on the last day of the month and usually receive payment 15 - 30 days after invoice. As such, all my invoices for 31/03/13 were declared in the 2012-2013 tax return but payment was only received in the 2013-2014 tax year. I assume I would not have to declare this income twice as it's already been declared and tax paid in the previous tax year.

Thanks in advance for any help .

Suarez

Cash basis is normally better and easier for the small business.

For accounting purposes accruals are more accurate but this doesn't help cashflow as you will be recording sales but might not receive the money for a few months.

antrobus

michbright wrote: »

.... I assume I would not have to declare this income twice as it's already been declared and tax paid in the previous tax year.......

Correct - "receipts are taxed once and once only".

http://www.hmrc.gov.uk/budget-updates/march2013/simpler-income-tax-tech-note.pdf

michbright

Thanks for this.

I think I'm going to switch to the cash basis - in the first year, it 'saves' me £400 in tax . Obviously I know it's merely a deferment to next year, but at least it's a bit of a 'saving' now .

zygurat789

michbright wrote: »

I
I know there is a new system that has now been introduced for 2013-2014 and I would just like to know what the advantages (if any) of using the cash basis vs accruals basis would be.


Thanks in advance for any help .

The cash basis would generally be beneficial to traders who have debtors and stock at the year end because neither of thses will be accounted for resulting in a one-off reduction of taxable profits.
Conversely traders who have creditors at the year end would generally be disadvantaged by using the cash basis because the creditors, which reduce profits, would not be accounted for.
A cash over the counter retail shop would probably not use the cash basis whereas a trader who gives a lot of credit but pays for his stock promptly would probably opt for it.

michbright

Thanks, again. I work from home as a freelance transcriber, so have minimal expenses, therefore the cash basis is perfect for me .

madgagoo

A further benefit of the cash basis is that you get automatic bad debt relief. If you don't receive the payment, then it won't be taxed.

Also remember that if you use cash basis then you must use the simplified expenses basis for any business mileage, rather than claiming expenses for running a car.

michbright

madgagoo wrote: »

Also remember that if you use cash basis then you must use the simplified expenses basis for any business mileage, rather than claiming expenses for running a car.

I don't do any business mileage at all for my work as I work from home and communicate with everyone electronically, so this is not an issue for me. Thanks for your input .