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Using Cash Basis to workout your income and expenses for your Self Assessment tax return

‘Cash basis’ is a way to work out your income and expenses for your Self Assessment tax return, if you’re a sole trader or partner.

Why use cash basis

If you run a small business, cash basis accounting may suit you better than traditional accounting. This is because you only need to declare money when it comes in and out of your business. At the end of the tax year, you will only pay Income Tax on money received in your accounting period.

When cash basis might not suit your business

Cash basis probably will not suit you if you:

  • want to claim interest or bank charges of more than £500 as an expense
  • run a business that’s more complex, for example you have high levels of stock
  • need to get finance for your business – a bank could ask to see accounts drawn up using traditional accounting to see what you owe and are due before agreeing a loan
  • have losses that you want to offset against other taxable income (‘sideways loss relief’

Who can use cash basis

You can use cash basis if you:

  • run a small self-employed business, for example sole trader or partnership
  • have a turnover of £150,000 or less a year

If you have more than one business, you must use cash basis for all your businesses. The combined turnover from your businesses must be less than £150,000.

Who cannot use the scheme

Limited companies and limited liability partnerships cannot use cash basis.

There are also some specific types of businesses that cannot use the scheme:

  • Lloyd’s underwriters
  • farming businesses with a current herd basis election
  • farming and creative businesses with a section 221 ITTOIA profit averaging election
  • businesses that have claimed business premises renovation allowance
  • businesses that carry on a mineral extraction trade
  • businesses that have claimed research and development allowance
  • dealers in securities
  • relief for mineral royalties
  • lease premiums
  • ministers of religion
  • pool betting duty
  • intermediaries treated as making employment payments
  • managed service companies
  • waste disposal
  • cemeteries and crematoria

Contact us to see how we can help you with this.

 

 

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