16:36 PM, 22nd March 2012, About 9 years ago
Keeping accounts for a buy to let business could be a lot simpler if the Government adopts cash accounting for small businesses.
Chancellor George Osborne announced in Budget 2012 that he was launching consultation on a dispensation that will let small businesses turning over less than £77,000 switch to a simpler way of calculating profits.
Buy to let businesses taking in rents of £77,000 in a tax year are in the small business net cast by the Chancellor as their accounts are based on the same rules as other businesses laid out in the Income Tax (Trading and Other Income) Act 2005.
Cash accounting lets a business account for income received and expenses paid rather than dates on invoices.
Andrew Gotch, chairman of the Chartered Institute of Taxation’s owner managed business taxes sub-committee, said: “We are impressed that the Government has taken up this proposal from the Office of Tax Simplification, making it potentially available to most non-VAT registered businesses.
“The proposals make good sense and reflect what many businesses already do.
“Moving to a simpler receipts and payments basis will be much easier for most small businesses and will make it simpler for them to comply with their tax obligations, reducing the need for so many checks by HM Revenue & Customs.”
The £77,000 turnover threshold aligns with the VAT turnover threshold for businesses, and is likely to increase at the same rate as the VAT cap.
“Aligning the proposals with the VAT threshold is a logical and is likely to reduce the number of businesses which will move between the cash system and the more complex accruals basis,” said Gotch.
“Exposure to complications on moving across borderlines is always a concern when businesses face different regimes, but this means that the businesses faced with that problem will be more mature and in a better position to cope with – and afford – that transition.”
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