Cash basis for small businesses
Small businesses with a turnover of less than £81,000 should consider the use of the cash basis scheme for simpler accounting. The scheme has been available since 6 April 2013. The use of the scheme focuses on using a cash basis enabling sole traders and other unincorporated businesses to simplify their accounting processes.
In particular, HMRC recommends the scheme for small businesses providing services such as hairdressers, window cleaners, taxi drivers, gardeners, painters and decorators, plumbers and electricians.
Businesses can also choose to use simplified expenses which involve flat–rates for expenses relating to the following:
- business costs for vehicles;
- business use of your home; and
- private use of a business premises as a home.
The threshold to use the scheme mirrors the VAT registration threshold and increased to £81,000 on 6 April 2014. Once a business has entered the cash basis scheme they can continue to report in this way until their income reaches double the VAT threshold.