Self-Assessment: 'cash basis'?!?

bubbleoflife_2

I've noticed something new on the on-line form:

'Did you use the cash basis, money actually received and paid out, to calculate your income and expense? Please read the notes.'

What is this about? Why the changes?

I've said 'Yes' because my earnings are received by cash or bank transfers (I'm a self-employed private tutor/IT trainer and occasionally some office admin work--it's quite a juggle to make a living!). I keep separate books for three of them and record date, name, hourly rate, total earned.
So, I suppose the 'cash basis' applies to me. Right?

TheCyclingProgrammer

Cash basis has nothing to do with how you get paid. It's to do with when you account for things..i.e. Is it when you invoice or receive a bill (accruals basis) or when you get paid/pay for something (cash basis).

bubbleoflife_2

TheCyclingProgrammer wrote: »

Cash basis has nothing to do with how you get paid. It's to do with when you account for things..i.e. Is it when you invoice or receive a bill (accruals basis) or when you get paid/pay for something (cash basis).

Sorry, I still don't get it

Pennywise

Under the normal basis, you have to include income and expenditure according to when the work was done or services provided. IE if you did work in the 13/14 tax year but didn't get paid until the 14/15 tax year, you had to include the income in the 13/14 tax return. That's what the rules have been for decades.

For 13/14, there's a new "simplified cash basis" for smaller businesses where you can opt to simply include the monies received and paid in the tax year and ignore monies owed/oweing or work in progress or stocks at each tax year end. But it has it's own set of rules for dealing with travelling, interest, capital purchases, use of home and losses, so you have to accept all the rules, good & bad, or stay on the old system.

https://www.gov.uk/simpler-income-tax-cash-basis/overview

payless

For most items / cases I thought the use of cash basis and the use of simplified expenses were separate issues

( ie you can go cash basis but use non simple based expenses calculation, and the reverse )

Pennywise

payless wrote: »

For most items / cases I thought the use of cash basis and the use of simplified expenses were separate issues

( ie you can go cash basis but use non simple based expenses calculation, and the reverse )

There is no "cash basis" for reporting business income and expenditure on SA returns. Up to 13/14 all business income and costs had to be reported on the invoice/accruals basis. Now you can adopt the simplified cash basis but have to adopt it fully or not at all.

payless

Hi penny wise can you point me in the direction of this rule as all I can find is

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/323586/hs222.pdf

Simplified expenses
From 2013–14, you can start using simplified expenses if you are a sole trader or business partnership (including limited liability partnerships).
You do not need to be using cash basis to use simplified expenses.
Limited companies and partnerships that include a limited company cannot use the simplified expenses scheme.
Simplified expenses use flat rates, instead of actual business expenses, to calculate:
• business costs for vehicles
• business use of your home or private use of business premises as a home
(not both).
All other expenses you have to calculate in the usual way.
You do not have to use simplified expenses. You can decide if it suits your business.

Pennywise

payless wrote: »

Hi penny wise can you point me in the direction of this rule as all I can find is

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/323586/hs222.pdf

Simplified expenses
From 2013–14, you can start using simplified expenses if you are a sole trader or business partnership (including limited liability partnerships).
You do not need to be using cash basis to use simplified expenses.
Limited companies and partnerships that include a limited company cannot use the simplified expenses scheme.
Simplified expenses use flat rates, instead of actual business expenses, to calculate:
• business costs for vehicles
• business use of your home or private use of business premises as a home
(not both).
All other expenses you have to calculate in the usual way.
You do not have to use simplified expenses. You can decide if it suits your business.

That means:-

If you're on traditional accounting basis (accruals), you can use elements of the simplified expenses basis i.e. for travelling and use of home.

But, if you want to change to the cash basis, you HAVE TO use all the simplified expenses basis, i.e. no loss relief and all capital costs claimed for in year of purchase.

I can't see where it suggests you can use the cash basis without adopting all of the simplified expenses basis rules. In fact it is quite clear that using the cash basis means that all the "simplified expense" rules must be followed.

It also says "From the 2013–14 tax year, you can choose to start using cash basis. " which confirms that the cash basis was not available prior to the 13/14 tax year.

chrismac1

I doubt if any professional accountants will be adopting the cash basis for two main reasons:

1. There are a whole new set of rules, as above. But unlike the existing rules these ones have no legal precedents, in other words no cases where HMRC took on the taxpayer and lost. This strikes me as an extra risk.

2. International Accounting Standards (IAS) require the use of the accruals basis. So cash basis accounts do not conform to IAS. Currently banks require self-employed people to jump through a great many - often silly - hoops in order to get mortgages and other loans. Having non-IAS accounts strikes me as an open goal for the banker to pass the ball into to decline the loan application.

bubbleoflife_2

chrismac1 wrote: »

I doubt if any professional accountants will be adopting the cash basis for two main reasons:

1. There are a whole new set of rules, as above. But unlike the existing rules these ones have no legal precedents, in other words no cases where HMRC took on the taxpayer and lost. This strikes me as an extra risk.

2. International Accounting Standards (IAS) require the use of the accruals basis. So cash basis accounts do not conform to IAS. Currently banks require self-employed people to jump through a great many - often silly - hoops in order to get mortgages and other loans. Having non-IAS accounts strikes me as an open goal for the banker to pass the ball into to decline the loan application.

Oh gosh! It sounds so complicated I think I'll need to go on a course of some sort... In the mean time, would I then be safer saying 'No' to that question?

payless

I am still reading it to say that someone can move to cash basis , but keep to original rules relating to car expenses and working from home proportion expenses