Simplified cash basis for small unincorporated businesses

By Tolley

The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Simplified cash basis for small unincorporated businesses
  • Overview of the simplified cash basis
  • Eligibility for simplified cash basis
  • Basis periods under the simplified cash basis
  • Entering and leaving the simplified cash basis
  • Losses under the simplified cash basis
  • Should the business owner opt for the simplified cash basis?
  • Future changes

Two new income tax simplification measures were introduced from 2013/14 onwards to reduce the administrative and regulatory burden on small unincorporated businesses and therefore encourage individuals to start their own businesses. The provisions remove the need to capture and retain certain information that was required prior to that tax year and also save costs in complying with certain parts of the tax legislation.

These two measures are:

  • a simplified basis for calculating taxable profits, and
  • fixed rate deductions for certain expenses rather than calculate the actual amounts (eg business use of car, business use of home, subsistence)

FA 2013, Schs 4, 5

The criteria for using these measures are different, but both are available to unincorporated businesses only.

This guidance note is an overview of the simplified cash basis. For information on the fixed rate expenses, see the Fixed rate deductions for expenses of unincorporated businesses guidance note.

For more detailed guidance on the simplified cash basis, see the Simplified cash basis for small businesses and Simplified cash basis expenditure guidance notes (subscription sensitive). For HMRC guidance, see the technical note  dated 28 March 2013 which was published to coincide with the Finance Bill (now archived). Although no changes were introduced during the parliamentary process, note the changes to the entry threshold and capital / revenue divide from 2017/18 mentioned below.

For ease of reference, the alternative to the simplified cash basis is referred to as the ‘GAAP basis’ in this guidance note, although of course this means the basis under which both the generally accepted accounting practice (GAAP) and standard tax provisions apply.

For a discussion of potential future changes to the simplified cash basis under the Making Tax Digital project, see the end of this guidance note.

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