Simplified cash basis for small businesses

By Tolley
OMB_tax_img4

The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Simplified cash basis for small businesses
  • Criteria for cash basis for small business
  • Electing in to and out of the cash basis
  • Basis periods
  • Calculating the profits
  • Trading losses under the simplified cash basis

The cash basis for small businesses is a simplified form of accounting that uses a cash basis and was introduced from 6 April 2013.

FA 2013, Sch 4
Criteria for cash basis for small business

The cash basis for small business (hereafter just‘cash basis’) is available by election under ITTOIA 2005, s 25A. In order to be eligible, the business must meet the three criteria laid down in ITTOIA 2005, s 31A:

  • the total of the cash basis receipts for all trades, professions or vocations carried on by a person does not exceed any “relevant maximum”
  • if the person is either an individual who controls a firm or a firm controlled by an individual, the total cash basis receipts for all trades carried on by the individual or partnership in a tax year do not exceed the relevant maximum amount and the individual or partnership uses the cash basis for all those trades
  • the person is not an excluded person

BIM70010

A person controls a partnership if he has the right to more than one half of the assets or income of the partnership. If two partners own a partnership equally there is no controlling partner. For non-controlling partners, whether they are in a partnership with a controlling partner or not, only the cash basis receipts of their separate sole trades are aggregated to establish eligibility to use the cash basis for those trades. It does not matter whether the partnership also uses the cash basis or not.

BIM70011

The cash basis receipts are any receipts that are received during the basis period and would be brought into account under the cash basis.

The basis period is explained further below, but essentially it must be

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