So what is ‘Cash basis’
It is a way of working out your income and expenses for your Self Assessment Tax Return.
You can use cash basis if you:
- are a small self-employed business eg sole traders and partnerships
- have an income of £81,000 or less a year (this is the threshold when you have to register for VAT)
You can even start using cash basis from the 2013 to 2014 tax year.
You can’t use the cash basis if you are a Limited company or a limited liability partnership.
How’s it work
You will need to record money when it actually comes in and goes out of your business (all money counts – cash, card payments, cheque and any other method), unlike the traditional accounting (accruals basis) – record income and expenses when you invoice your customers or receive a bill.
Cash basis might suit smaller businesses because, at the end of the tax year, you won’t have to pay Income Tax on money you did not receive in your accounting period.
If you like any help with any booking or accountany matter please do get in touch
For more information: https://www.gov.uk/simpler-income-tax-cash-basis/overview