Self-Assessment: 'cash basis'?!?

chrismac1

As I say I would hate to have a tax check or enquiry under the "cash basis". First up you are relying on the wording of the HMRC manuals, which are unreliable at the best of times. Worse still, you have no legal precedents or Tribunals to reference in your defence.

In a nutshell, unless HMRC have made a schoolboy error in bringing the case, you might just as well cough up and not waste your time appealing. There will be no "cash basis" accounting done in my firm!

bubbleoflife_2

chrismac1 wrote: »

As I say I would hate to have a tax check or enquiry under the "cash basis". First up you are relying on the wording of the HMRC manuals, which are unreliable at the best of times. Worse still, you have no legal precedents or Tribunals to reference in your defence.

In a nutshell, unless HMRC have made a schoolboy error in bringing the case, you might just as well cough up and not waste your time appealing. There will be no "cash basis" accounting done in my firm!

Thank you chrismac1
I'll go and change to 'NO' ASAP!

Saver-upper

Ooohhh,I didn't know this!
Like bubbleoflife I assumed wrongly,the meaning of this question.Can someone just confirm I should also change my answer to "no".
I am a self-employed cleaner,and in the 2013-14 tax year earned just over £5000 (cannot remember the exact amount).I admit I do not [STRIKE]fully[/STRIKE]understand the question,but assumed it referred to the fact mine is a very simple (cash business) tax return :
money comes in minus expenses of supplies,not really affecting very much because I am under the tax thresh-hold.
Should I change my answer to "no".

chrismac1

If in any doubt, answer No.

Pennywise

Another case where the gov.uk website is wrong re the cash basis.

On the gov.uk website, re use of home expense allowance it says:-

"The flat rate doesn’t include telephone or internet expenses. "

Yet HMRC's business income manual says:-

"the simplified expenses rules allow a fixed rate deduction for household running costs on heat, light, power, telephone and broadband/internet costs."

So, considering that HMRC call this "simplified" cash accounting, do you regard the fixed use of home figure as including or excluding telephone and internet - two clearly conflicting instructions.

Can you trust the gov.uk website? Ever since the Business Link, Co House and HMRC websites started to be transferred over, there've been loads of errors made and wholesale dumbing down.

Considering there is still no official guidance from the main banks as to whether they'll accept accounts figures drawn up under the new simplified cash basis, anyone who may need to apply for a loan or mortgage should be very wary of using the scheme.

PlutoinCapricorn

People who get paid very quickly for their work and/or who get small amounts need not worry: accruals basis is fine.

In the past, accruals seemed unfair to people who invoiced their clients in, say, late March but did not get paid until well after the end of the tax year. They may have paid tax on income earned for the 2011/12 year but paid early in the 2012/13 year. If this happens a lot, cash basis would benefit them.

Pennywise

PlutoinCapricorn wrote: »

People who get paid very quickly for their work and/or who get small amounts need not worry: accruals basis is fine.

In the past, accruals seemed unfair to people who invoiced their clients in, say, late March but did not get paid until well after the end of the tax year. They may have paid tax on income earned for the 2011/12 year but paid early in the 2012/13 year. If this happens a lot, cash basis would benefit them.

But even then, the actual payment date of the tax is still months after the money is received. It would only be if the customer didn't pay until many months after the tax year end that the tax would be paid before the money was received.

The "simplified" cash basis is full of complexities and uncertainty and conflicts. The underlying rules have changed in many cases since it was first announced.

Not being able to get relief for losses, having your interest restricted and having no flexibility as to timing of capital allowances all make things worse and can make some things more complicated. The scale rates for add-backs for people who live on their business premises (such as guest houses) are likely to be detrimental compared to the apportionment basis.

At the end of the day, accounts and tax aren't simple - they never will be. You need a robust set of rules so that other users, i.e. lenders, tax office, suppliers, potential buyers, know exactly how the accounts are prepared so that they can make proper business decisions.

Personally, I think HMRC were right in the earlier stages when they used a turnover limit of £15k for "simplified" accounts which would cover the smallest and simplest of businesses, such as new start-ups, hobby or part time businesses, lifestyle businesses, etc. A "proper" business that maybe employs people, maybe needs bank finance, maybe needs credit from suppliers, maybe will want to be sold or investors brough in, should do it's accounts and tax returns on a proper recognised basis. To extend Mickey Mouse accounting to larger "real" businesses in the £15-£81k turnover range is a disaster waiting to happen.

chrismac1

It was a good sound bite for George Osborne. At the time I suspected that HMRC would cloak it in so many restrictions and regulations that it would be worthless. Nothing I have seen since then has caused me to alter that initial view.

purdyoaten

The most worrying aspect is the number of DIY filers who believe that because they use cash in their business, they have adopted the cash basis.

And not just on here...

PlutoinCapricorn

Yes, and I think it is HMRC's fault. It should be, for example, work performed or work paid for.

As for cash versus accruals, I know that the money should have arrived long before the tax is due. but it makes sense for people whose income increases annually and have large amounts arriving soon after the end of the tax year to use the cash basis option as it pushes the problem into the future.