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News - 12 April 2012

Is cash accounting the way forward for Nano businesses?

The chancellor announced in the Budget that from April 2013 a new cash basis for calculating tax for small unincorporated businesses would be introduced. The government will consult on the details of the scheme including extending eligibility to businesses with a turnover up to the increased VAT registration threshold of £77,000 - currently the threshold is £73,000 but it likely to increase in October.

The government says this measure will benefit up to three million small businesses, reducing the time it takes for them to calculate their tax.

However, Stuart Coleman, Manager of the Tax Department of ABDS says:
“We will have to wait to see the small print to see if it turns out to be a true simplification as promised.”

He goes on to add:
"A lot of businesses already operate the cash basis for their VAT calculations, but you cannot apply the cash basis to all types of business. Cash accounting for VAT does not always work for year-end accounts."

Tonmoy Kumar, Manager of the Accounts Department of ABDS says:
“there could be greater scope for tax evasion if the government, as has been suggested, pushes the business turnover threshold for the cash accounting basis up to £150,000 - especially as businesses at this level have employees whose PAYE and NI needs to be accounted for properly.”

He goes on to add:
“It could also go the other way, with small businesses paying too much in tax - will moving to a cash basis really help them stay liquid and solvent?”

Lavinia Newman, Founder of ABDS says:
"The other issue is that when these businesses apply for bank loans they will need accounts prepared by accountants on the accruals basis.  I don't think the cash basis would do away with small businesses' need for accountants - like the introduction of the audit exemption for small companies, all that has happened is that accountants evolved into a more business advisory role to their clients.”

If you need any help and advice on Business Plans, Management Accounts, Budgets and Cash Flow Forecasts, contact Lavinia Newman, Stuart Coleman or Tonmoy Kumar NOW to discuss how ABDS can help in all your financial planning.

ABDS Chartered Certified Accountants of Southampton.
Tel: 023 8083 6900  E-mail: abds@netaccountants.net

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