More than three million small businesses are set to benefit from plans to simplify their tax affairs, under proposals announced as part of the 2012 Budget.
Consultation has now begun on the government’s plans for a simpler tax system for the smallest unincorporated businesses – those with a turnover below £77,000, the current VAT registration threshold – called cash basis, along with simplified arrangements for some business expenses.
The government says that more than three million self-employed small traders and partnerships could benefit from the proposals, which would make it easier and simpler to deal with their tax affairs. It says that advantages include:
- no need to work to rules designed for larger businesses
- businesses being taxed on the basis of cash that actually passes through their books, leading to cash flow benefits where taxation is delayed
- no need for complex records (such as stock, debtors and creditors) over and above those needed to run a business effectively
Businesses would be able to continue to use the cash basis until their receipts rise to more than £150,000. The scheme would be voluntary and businesses using the cash basis would be able to return to the normal tax regime if they decided it suited them better.
The government also wants to simplify arrangements on certain expenses, as an integral part of cash basis, by introducing:
- a standard mileage rate for business use of cars or motorcycles
- a flat rate expenses for business use of home
- a flat rate adjustment for personal use of business premises
Consultation on the proposals will close on 22nd June with, depending on the outcome, draft legislation published in the autumn.
For more information on the cash basis or simplified expenses proposals and their implications for your business, please contact us.