Govt champions 'cash basis' scheme, what does it mean for sole traders?

Friday 21 February 2014

Sole trader tax has become the focus of one of HM Revenue and Customs' (HMRC) new schemes.

The government is urging small companies to join a programme that allows them to be taxed on money flowing in and out of the business.

Known as the 'cash basis' scheme, the initiative allows sole traders with an annual income of less than £79,000 to avoid some of the full accounting rules. This, HMRC claims, simplifies the accounting process and saves time and money.

Through the scheme, sole traders are asked to work out the cash received in a tax year, minus any money spent on allowable business expenses.

HMRC believes this will mean small businesses won't have to spend time at the end of the tax year making accounting adjustments, which can be more challenging for sole traders to do than larger companies.

Having fewer resources at their disposal makes accounting a difficult task for many self-employed individuals. Luckily, sole trader accounting services are available to ease the burden of compliance with HMRC rules and regulations, but any scheme to simplify tax will no doubt still be welcomed.

It is thought the 'cash basis' scheme will benefit small businesses, thanks to its simplicity.

Unincorporated companies can also choose 'simplified expenses', which applies flat-rates to prevent complex calculations.

According to HMRC, this can be used for the business cost of vehicles, the business cost of using a home and the private use of a business premises as a home.

Carol Lunney from HMRC said: "The cash basis and simplified expenses schemes can help save small businesses time and money. With a new tax year on the horizon, now is the time to start thinking about them. So, if you’re eligible, go online and find out more about the schemes at GOV.UK."

With time a major challenge for small businesses, government programmes to reduce the hours spent on tax compliance and admin are key.

Indeed, the Forum of Private Business (FPB) observed that 36 per cent of small companies think time will continue to be the main challenge going forward.

This will present problems for sole traders in the way they manage their business and continue to grow.

Cash and a lack of relevant expertise are also barriers for small companies, cited by 26 per cent and 13 per cent respectively.

However, government attempts to reduce the regulatory burden and simplify tax for sole traders will go some way to allowing them to realise their growth potential.

Alexander Jackman, head of policy at the FPB, said: "Now is the time to build on the success of deregulation measures introduced and to really push on minimising the impact of some of the big employment law reforms currently in progress. A focus on creating stability of regulation for small businesses would be enormously helpful."

Simplifying accounting will also allow sole traders to direct resources into developing customer bases, which was cited by businesses as the most important growth strategy. Sixty per cent will target new customers this year, with 42 per cent also putting the focus on customer service.

By Victoria McDonnell

Get in touch

Please select your type of enquiry:

Brookson on Twitter