Cash Basis Scheme Changes
Posted on 10th February 2017 at 12:55
The cash basis scheme is a way to help sole traders and small businesses manage their financial affairs easily. This scheme is currently open to businesses with a turnover of no more than £83,000, but the government have decided to make some changes to this.
From 2017- 2018, the entry threshold to participate within the cash basis scheme will be increased to £150,000. Also the rules on capital and revenue expenditure within the scheme will be simplified so businesses understand and can work out whether expenditure is deductible. Making Tax Digital is being introduced in 2018 and these changes are linked closely with the introduction of this.
When a business is using the cash basis scheme they can continue it until their income reaches double the threshold which will increase from £166,000 to £300,000. Also allowing qualifying businesses to use the cash basis when recording income and expenditure. This includes recording the amount of money to and from the business based on actual money flows.
Accruals basis is known as the traditional accounting which entails income and expenditure being recorded when customers are invoiced or bills are received. Adjustments may need to be made if an existing business wanted to move to the cash basis scheme, but the scheme can be used by both new and existing businesses. Businesses that this scheme is very suited to are straight forward businesses that provide a service.
Limited companies, limited liability partnerships and further businesses such as managed service companies and businesses that have claimed research and development allowance aren't able to use this scheme.
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